Bilateral Investment Treaties (‘BIT’) establish the terms and conditions for private investments made by individuals and business entities from one sovereign State into other sovereign State[1]. The first ever BIT was entered between Germany and Pakistan on November 25, 1959[2] and since then, the BITs have evolved in an unprecedented manner.  However, the genesis of across the border investments is very old and can be traced back to the colonial periods and multifold investments across the territory of India were made but one could not have argued against the vile intricacies of the investment back then before an investment arbitral tribunal[3]. However, with the passage of time, the modalities of investments have changed and now the investments are made under binding agreements and disputes arising therein are resolved qua dedicated investment tribunals working under different conventions and rules.

The disputes arising out of a BIT are not a contractual dispute as such because there is no privity between the parties. Perhaps, that is the reason why, investment arbitration is also known as arbitration without privity[4]. The disputes that arise between the parties of the BIT are between two States so, the entire dynamics of such an arbitration is different as what one would usually observe in a domestic arbitration. A commercial arbitration is based on an arbitration agreement, whereas investment arbitration may be based on either an investment treaty or a bilateral/multilateral treaty.

India as one would recall was rather a closed economy prior to the 1991 economic liberalisation but after the 1991, the Indian economy underwent some major structural changes. For the very first time, countries all around the world were encouraged to invest in India and the Indian economy saw liberalisation to reach new heights.

Bilateral Investment Treaty: Indian Context

The BIT primarily came into picture to safeguard the investments which were made by different countries. An investment across the borders is generally a long term relationship and the investor look for certain level of safety before making the investment. The BITs do not afford protection such as insurance coverage for the investments rather it devolves a mechanism to resolve the disputes arising during the tenure of investment. India signed its first BIT in 1994 with the United Kingdom. Since, 1994, India has signed around 84 BITs out of which according to the latest data, currently, there are 14 BITs which are in force, 58 out of 84 BITs have been terminated. In addition to the BITs, India has also entered into Comprehensive Economic Cooperation Agreements (‘CECA’) which covers issues like investment, trade, intellectual property rights, etc. India has also contemplated the idea of entering Foreign Treaty Agreements (‘FTA’) with European Nations[5].

As per the recent data, India is ranked among the top 10 nations in the world for the inbound Foreign Direct Investment (‘FDI’)[6] and among the top 20 for the outbound FDI. In last five years, FDI inflow in India has increased by 11.5% totalling to around 62 billion dollars in the FY 2018-2019. In the same financial year, the outbound FDI also rose up to 11 billion dollars. The uprising in the quantum of FDI is a result of unprecedented change in the Indian FDI policy. India has now allowed FDI in Defence[7], Telecom[8], Information and Broadcasting, etc. India had also increased its FDI capping in E-commerce[9] and Insurance[10] sector from 49% to 100% which has seen massive investments being made by foreign entities in the Indian companies. India has also worked towards promoting ‘ease of doing businesses’ with dedicated ministry and departments.

Institutions adjudicating investment Arbitrations across the world 

There are institutions across the world which governs different investment arbitration more specifically depending upon to which institution the parties agree to submit their disputes. The mechanism in such arbitration is just like an international commercial arbitration. The tribunal under the various institutions primarily adjudges behavior of the host States towards a foreign investor. The International Centre for Settlement of Investment Disputes (ICSID), International Chamber of Commerce International Court of Arbitration (ICC) and Stockholm Chamber of Commerce (SCC) are preferred arbitration institutions by the parties. Generally, where a bilateral investment treaty exists, investors are free to bring arbitration actions in any of the arbitration institutions as identified in the said treaty.  Most of the BITs provide for a mechanism of dispute settlement through any of the arbitral institutions as mentioned above[11].

Underlying facets of BIT

BIT has many facets to it, however, there are a few underlying facets of BIT which holds great significance. They have been enlisted and discussed below[12]:

a) Fair and Equitable Treatment (FET): FET is considered to be one of most frequently invoked facets in a BIT. When an investor invests into a country, an expectation of fair and equitable treatment comes on a pretext of a healthy competition with the local/domestic players of a host country. However, it is pertinent to consider that the contours of its deciphering may differ with the specific wording/nomenclature of the specific clause as mentioned in a BIT.

b) Protection from Expropriation: Expropriation can be understood as nationalisation of assets of a foreign investor or taking any such measures which have similar effects as that to a right of property of an individual. Prevention against expropriation is the fundamental principle of International Law and hence, it holds out as a very significant facet of a BIT. A foreign investor would apprehend the prospects of expropriation as generally the quantum of investments made is very high.

There is also a concept called ‘creeping expropriation’ which means that the economic value of the investment has been eaten out to such a level that it virtually becomes worthless[13].

c) Most Favoured Nation Treatment (MFN): It is one of the most alluring facets of a BIT. The MFN clause ensures that a foreign investor will get all the advantages within the four walls of the highlighted clause in a BIT with respect to the investment made in the host State. It boasts the confidence of the investor State as MFN status invariably promises to treat the foreign investor at par with all the domestic investors of the host State.

d) Full protection and security: The host State is under an obligation to ensure that the investments made by a foreign investor is protected and secured. The protection herein is multifold as the host State should protection of the employees, assets, facilities associated with the investment. The said clause of protection and security may also include guarantee and security provided by the host State.

e) National Treatment: It is one of the responsibilities of the host State that it treats the foreign investor equally as its domestic investors and market players. It is also to ensure for the host State that the foreign investors are made available all the competitive opportunities as may be available with any of the domestic players.

f) Freedom to transfer funds: It is one of the primary responsibilities of the host State under a BIT to ensure that a foreign State is able to transfer the returns from the investment to their own country and in their own currency. It also comes in as one of the most sought out clauses in a BIT as smooth realisation of funds/returns from an investments attract more investors in a host State.

g) Sunset Clause: Sunset clauses are regarded as survival clauses. A general sunset clause will include a period of 5 years and longest could go up to 25 years. For instance, China and India entered BIT into 2007 but the BIT got terminated in 2017[14]. The termination would ideally mean an exit for the parties to the BIT but such survival clauses in the BITs complicate the exit route. The process of denunciation becomes cumbersome if the BITs are not negotiated between the parties prudently which could result in having such a clause in the BIT.

h) Fork in the road clause: In the Model BIT, 2016, an investor ideally has to explore all the domestic redressal avenues before approaching the investment arbitral tribunals. However, in few of the agreements, the investors have an option of either moving before domestic courts and tribunals or to move before the investment tribunals. Such a clause is known as fork in the road clause[15].

BIT Arbitrations in India 

After signing its first BIT in 1994, India devolved its first Model BIT in 2003 and it resembled with the United Kingdom BIT. However, India faced its first round of BIT arbitration in the year 2004 in the infamous Dabhol Power Plant case[16]. The plant was to be set up in the State of Maharashtra and various investor states like United Kingdom, Netherlands, Mauritius, France, Switzerland and Austria invoked the BIT arbitration against India. More specifically, Bechtel and General Electric brought claims against India under the India-Mauritius BIT, alleging expropriation of their interest in the power plant by the Indian Government. The claims were however settled and India had to compensate for losses.

Thereafter, one of the first substantive cases related to BIT arbitration came up in the White Industries case[17]. In 1989, the Australian company entered into a contract with the Coal India Limited, a public sector undertaking for developing of coal mines in Piparwar (Erstwhile Bihar, now Jharkhand), India.  White Industries alleged that due to inconceivable delay at the hands of the Indian judiciary spanning around 9 years, the company had incurred huge losses and there has been a breach of treaty guarantee. One of the interesting facets of the said case was while passing the award, the tribunal held that there had been a breach of guarantee to provide ‘effective means to assert claims’, a guarantee which was not present in the India-Australia BIT and was drawn from India-Kuwait BIT. The award[18] made India pay approximately USD 4 million as damages and legal cost[19].

Investor-State Disputes in India 

Whenever disputes relating to investments come to our mind specifically in the Indian context, the case of Louis Dreyfus Armateurs SAS v. India [20] cannot be ignored. It is considered to be one of the first cases where India succeeded in having an award in its favour. In first of its cases resulted out of a dispute that arose after termination of the agreement by Haldia Bulk Terminals Private Limited (‘HBT’). Louis Dreyfus initiated investment arbitration against India under the India-France BIT alleging that the termination of HBT virtually decimated the investment. An UNCITRAL arbitral tribunal has reportedly dismissed a US$ 36 million claim by a French investor, Louis Dreyfus Armateurs SAS (“LDA“), against India under the 1997 France-India bilateral investment treaty (“BIT“). The award is not public at this time, but press reports state that LDA has also been ordered to pay approximately US$ 7 million in respect of India’s substantial legal expenses[21]. The Permanent Court of Arbitration held[22] that in order to invoke jurisdiction of the tribunal by an investor in an indirect investment, the investor shall hold at least 51% ownership in order to fall within the protection granted by the BIT as defined under Article 2(1) of the BIT.

Among the other investment arbitrations like Deutsche Telekom AG v. Republic of India[23], Khadamat Integrated Solutions Private Limited v. Kingdom of Saudi Arabia[24], one such case which is also very significant is Union of India v. Vodafone GroupPlc [25]. In 2014, Vodafone International Holdings BV (‘VIHBV’) initiated investment arbitration against the Republic of India under the India-Netherlands BIT. It was interesting to note that while the abovementioned arbitration was pending the VIHBV filed another set of investment arbitration under the India-UK BIT against the retrospective effect of an amendment made by the Indian Government under Section 9(1) and Section 195 of the Income Tax Act, 1961 read with Section 119 of the Finance Act, 2012. The Indian Government approached the Delhi High Court seeking an anti-arbitration injunction against VIHBV for initiating two parallel arbitral proceedings. However, in the year 2018, the Delhi High Court rejected[26] the contentions of  Republic of India upholding the principle of ‘kompentz kompetz’ and held that the purview of intervention with a BIT arbitration is very limited and the provisions of the Arbitration and Conciliation Act, 1996 will not apply to the BIT arbitrations.

The year 2019 also saw some more relevant inter-State disputes.  Khaitan Holdings (Mauritius) issued a notice of dispute to Republic of India under the India-Mauritius BIT.  Republic of India moved before the Delhi High Court seeking anti-arbitration injunction against Khaitan Holdings. However, the Delhi High Court while relying upon Vodafone Plc[27] (supra) held that it is with the arbitral tribunal to determine whether Khaitan Holdings were investors as defined under the India-Mauritius BIT. The Delhi High Court in its judgment in Union of India v. Khaitan Holdings (Mauritius)[28] held that the provisions of the Arbitration and Conciliation Act, 1996 will not be applicable to such arbitrations[29].

Another interesting set of investment arbitration took place in Nissan Motor Co. Ltd. v. Union of India[30], where one of the facets of BIT i.e. fair and equitable treatment was evaluated by the Permanent Court of Arbitration. Nissan Motors initiated investment arbitration against India under India-Japan Economic Partnership Agreement against the non-payment of unpaid incentives under the Indian tax regime. Nissan also alleged that Republic of India has also violated Comprehensive Economic Partnership Agreement (CEPA) wherein the agreement affords some protection to the Japanese entities in India and vice versa.  Republic of India however, raised an objection before the Permanent Court of Settlement, Singapore with respect to its jurisdiction to adjudicate the dispute. The Permanent Court of Settlement, Singapore rejected the contentions made by  Republic of India. The case is still pending for final adjudication[31].

Model BIT, 2016-India’s Reconnisance attempt 

With the passage of time and after witnessing multiple investment arbitration downfalls, India tried to devolve a new Model BIT in 2016[32]. The Model BIT consists of 38 articles and 7 chapters and showcased a departure from the locus India used to have with its erstwhile BITs. It could be said that the 2016 Model is more State centric than its earlier predecessors i.e. the 2003 India Model BIT. The Model BIT has adopted  Salini Criteria’ as was held in the landmark case of ‘Salini Costruttori S.p.A and Italstrade S.P.A v. Kingdom of  Morocco[33] in order to determine the investment criteria for a foreign investor. The investment as mentioned in Article 1.4 has to be operated by the investor in ‘good faith’ which remains a point of deliberation while negotiating treaties with other countries[34].  Salini Criteria also postulated a mechanism which evaluates the substantial business activities for the test of investor[35].

The Model BIT has also made an exclusion of pre-investment activities from the purview of investments. It could be seen under Article 1.4(iii) which stated that “any pre-operational expenditure relating to admission, establishment, acquisition or expansion of the enterprise incurred before the commencement of substantial business operations of the enterprise in the territory of the Party where the investment is made.”

The Model BIT, 2016 has removed the Most Favoured Nation (‘MFN’) clause. A MFN clause ensures protection for a foreign investor and its investment and its primary purpose to afford equal treatment of both foreign and domestic market players. India has done away from the MFN clause taking its cue from Salini case[36] wherein the investor tried to import arbitration as a dispute settlement mechanism from Jordan-UK BIT through the MFN clause in the Jordan-USA BIT. The contention was, however, rejected by the International Centre for Settlement of Investment Disputes. India has tried to curb the chances of an investor seeking benefits from a separate treaty with a third party however, by not having MFN clause exposes a foreign investor to differential treatment risks.

India has also incorporated Article 15.2 which states that an investor has to necessarily seek legal remedy from the domestic courts of a host states for an initial period of 5 years before seeking a claim under Model BIT. If a foreign investor had to take a cue from the episodes of Indian judicial system in White Industries[37] then having this clause in the BIT might just prove preposterous for any investment.

One of the welcoming articles of Model BIT is Article 10 which deals with ‘Transparency’. The article ensures that the investing state or the investor get well versed with the prevailing laws, regulations and procedures. Also, Article 10.2 which postulates a mechanism of consultation with the investor State or the investor regarding a particular law, regulation, procedures will instill confidence in the investors.

The Model BIT, 2016 has also devolved a differentiation between direct and indirect expropriation. There is no precise definition of expropriation. However, the Model BIT, 2016 under Article 5 specifically deals with expropriation. The Model BIT, through indirect expropriation has covered the concept of ‘creeping expropriation’. The Model BIT has further broadened the contours of expropriation by stating that the character, intent and objective of the measure taken by the government of the host country has to be prudently evaluated before considering the prospect of expropriation. A perusal of Article 5 of Model BIT, 2016 reveals that it has been made more host-State-centric and requirements to adopt indirect regulatory measures create cynicism in the minds of the investor and further acts as a road block for an investor seeking refuge under the purview of expropriation before the investment arbitration tribunals.

Handling BITS and Investments during and after COVID-19 [38]

The entire world is undergoing an epidemic which has not only engulfed many lives but has considerably decimated multiple economies. For instance, the International Air Transport Association has estimated a loss of global revenue at USD 63 billion to USD 113 billion[39]. In these challenging times, it becomes pertinent to evaluate the global investment psychology as resistance in investments would become a common phenomenon. It would be interesting to see how India would re-plan and formulate its strategies so as to reinvigorate the investments in India[40].

It would be also interesting to see how investors are treated under such dire circumstances. As the lockdown, which has been enforced in a majority of nations across the world, the commitments underlying within a treaty may get disgruntled[41]. The prospect of indemnification with respect to the investors also needs to be evaluated.  One has to evaluate as to how will a non-performance of an obligation under a treaty will be treated? As most of the BITs provide for expropriation (direct & indirect) and general exceptions, it would also be interesting to see that how will be interpreted under the light of extra-ordinary circumstances such as COVID-19.  For instance, Article 32 covers the General Exceptions and Article 32.1(ii) specifically states that ‘(ii) protect human, animal or plant life or health’.

Times like these seek greater conscience and greater responsibilities. The very need to avoid the investor-Sate dispute could never have been any greater. When the entire world economy has been crippled by COVID-19, resorting to high stake Investor State Dispute Settlement (‘ISDS’) mechanism does not seem to be a good option. More specifically, for developing countries like India which has already been economically rattled by the pandemic, any investor-state dispute will further worsen the situation. According to the fact that the litigant might be reeling under a financial stress, an option of third party funding by someone who has a majority stake in the investment could be ruled out. A recent judgment of the High Court of Bombay in Norscot Rig Management Private Limited v. Essar Oilfields Services Limited[42], wherein it was held that, an arbitration award, which has been obtained due to third party funding, cannot be termed as against of public policy of India. The validity of such agreements would be tested by the fact of the validity of the arbitration award.

However, it is pertinent to mention that a study of the OECD estimates the average cost to defend a claim is USD 8 million[43]. Specifically for developing countries like India, claims by different foreign investors are bound to surface but a situation like this would require a holistic approach in order to have a feasible investment environment.

Parting Thoughts 

In the last decade, international investments have increased in an unprecedented manner but at the same time India has also terminated many of its BITs. The disputes related to BIT and investment arbitration is a fast evolving law. There have been a flurry of investment arbitrations and legal proceedings post arbitral proceedings which have challenged the fundamentals of BIT arbitration in India. India as a contesting party has had lot of debacles in the BIT arbitrations, sometimes due to weak clauses in the treaty and sometimes due to constrained usage of legal acumen. Most investment arbitrations nowadays are brought on the basis of bilateral and multilateral treaties and are conducted under different conventions like ICSID Convention, UNCITRAL Arbitration Rules, etc. India is not a signatory to the ICSID Convention, which is among the most sought out institution for BIT arbitrations. However, some recent decisions in the year 2019, for instance Tenoch Holdings Limited (Cyprus), Maxim Naumchenko (Russian Federation)[44], South-East Asia Entertainment Holdings Limited[45] cases bring some positivity to the BIT arbitrations in India.

One cannot ignore the fact that COVID-19 as an epidemic has savaged the world economy. With expectations of multiple claims to be made in future by foreign investors, it would be interesting to see how India handles the situation. 

*Authors are advocates practicing in Delhi.


[2] Treaty Between Federal Republic of Germany and Pakistan for Promotion and Protection of Investments dated 25-11-1959 (Bonn)

[3] Discrimination or Social Networks? Industrial Investment in Colonial India’ by Bishnupriya Gupta, University of Warwick; Department Economics.

[4] Friday Group Speaker: Justice Indu Malhotra : Bilateral Investment Treaty Arbitration: Last visited on 01.05.2020 (

[5] Department of Economic Affairs, Bilateral Investment Treaties (BITs)/Agreements







[12] V. Inbavijayan & Kirthi Jayakumar, “ARBITRATION AND INVESTMENTS– INITIAL FOCUS”, Indian Journal of Arbitration Law, Vol. 2, Issue 1




[16] Capital India Power Mauritius I and Energy Enterprises (Mauritius) Company v. India,    ICC Case No. 12913/MS, Award dated 27-4-2005 (ICA).

[17] White Industries Australia Limited v. Republic of India, Final Award dated 30-11-2011 (UNCITRAL)

[18] Ibid


[20] Louis Dreyfus Armateurs Sas (France) v. The Republic of India, PCA Case No. 2014-26, Award dated 11-9-2018 (PCA)


[22] Louis Dreyfus Armateurs Sas (France) v. The Republic of India, PCA Case No. 2014-26, Award dated 11-9-2018 (PCA)

[23] Deutsche Telekom AG v. the Republic of India, PCA Case No. 2014-10,  Interim Award dated 13-12-2017 (PCA)

[24] PCA Case No. 2019-24, dated 7-2-2020 (PCA)

[25] Union Of India v. Vodafone Group Plc United Kingdom, 2018 SCC OnLine Del 8842

[26] Ibid

[27] Ibid

[28] Union of India v. Khaitan Holdings (Mauritius), 2019 SCC OnLine Del 6755


[30] Nissan Motor Co. Ltd. (Japan) v. The Republic of India; PCA Case No. 2017-37



[33] ICSID Case No. ARB/00/4; Decision on Jurisdiction dated 23-7-2001



[36] Salini Costruttori SpA and Italstrade SpA v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction dated 23-7-2001 

[37] White Industries Australia Ltd. v. Republic of India, Final Award dated 30-11-2011 (UNCITRAL)





[42] Norscot Rig Management Pvt Ltd v. Essar Oilfields Services Limited; 2019 SCC OnLine Bom 9153 


[44] Tenoch Holdings Limited (Cyprus) v. Republic of India, Case No. 2013-23 (PCA)

[45] Astro All Asia Networks and South Asia Entertainment Holdings Ltd.  v. Republic of India; Award dated 8-10-2018 (UNCITRAL)

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