Tuesday, February 7, 2012

DIPP proposes exclusion of arbitration clause in Indian Investment Agreements

Live Mint reports here that the Department of Indsutrial Policy and Promotion ("DIPP") has proposed that India should not include Investor - State Dispute Settlement Mechanisms in its future economic treaties. The timing of the suggestion is interesting given that the decision in White Industries Arbitration is expected to come out soon. This could be a reflection of government's expectations on how the award will go.

The Mint report quotes an official of DIPP who gives the following reasoning for the suggestion - “This is now the view worldwide that the state should not get drawn into private disputes”. This characterisation of investment disputes as "private disputes" is erraneous. What is being adjudicated upon in an investment arbitration is obligations undertaken by a sovereign State in its treaty relationship with another Sovereign State. Hence, while the dispute is with a "private party", the dispute itself is far from "private".

It is true that we have seen a few withdrawals from the ICSID investor-State dispute resolution mechanism in the recent past and that there are concerns about the impact of investor-State arbitration on regulatory freedom of States. However, given the number of BITs and other economic agreements currently in force with a dispute resoltution clause, this cannot possibly prevent India from being 'dragged into' investment disputes in the future.

Additionally, if adequate care is not taken in the redrafting of our BIT templates in accordance with this suggestion, there could be situations where investors claim a right to access such dispute settlement mechanisms, though not provided for under a BIT, relying on the Most Favoured Nation Clause in the BIT and the availability of such mechanisms to third State investors.

I will soon be back with more thoughts on this issue.

Thanks to Mr. Luke Eric Peterson for drawing my attention to the issue and  discussing a few aspects in relation to the same.

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