2020 Year-in-Review Top 5 in Investor-State Arbitration: India

India has a long and eventful history in Investor-State arbitration. In this blogpost, we review the highlights and lowlights of Investor-State arbitrations against India in 2020.

1. India’s new bilateral investment treaty (BIT) negotiations and sunset liability under its terminated BITs

In 2017, India terminated 58 of its BITs, and up to now has terminated a total of 69 BITs. India has several other BITs which have not completed their initial terms, and so are not ripe for termination.

Even with regard to those treaties that have been terminated, it is important to note that some have “sunset clauses” which continue to protect investments made in India prior to the relevant BIT’s termination date. For example, last year, the Indian government revealed that it may be facing a claim from a Portuguese investor under the India-Portugal BIT. Although this BIT was terminated by India in March 2017, it contains a 15-year sunset clause which protects investments made in India prior to the BIT’s termination date for a period of fifteen years. Thus, the Portuguese investor may still be able to bring this claim against India under the now terminated India-Portugal BIT.

India’s termination of its original BIT network does not mean that it has turned its back on investment protection altogether. On the contrary, it has been trying to re-negotiate these BITs according to its newly adopted Model BIT, which introduced some significant changes to India’s investment regime. For example, the definition of protected investors and investments has been narrowed by (a) excluding certain investments from protection (such as intangible rights) and (b) requiring “substantial business activities” in their home States in order to be able to invoke a BIT between that State and India. The Model BIT also excludes tax disputes – this is likely intended to foreclose the possibility of future claims like the ones brought by Vodafone and Cairn Energy (discussed below). Most notably, the fair and equitable treatment and most-favored-nation clauses, which featured in most of India’s existing BITs and which represent the core of investment treaty protection, are deleted.

Since the termination of its BITs in 2017, India has signed five new BITs, namely with Cambodia, Belarus, Kyrgyz Republic, Taiwan and in January 2020, Brazil. The latest BIT with Brazil does not include a broad fair and equitable treatment clause, but instead lists specific measures that would traditionally have formed part of that protection including prohibition of: (a) denial of justice; (b) fundamental breach of due process; and (c) certain discriminatory actions.

 2. India settles claim with Nissan

In May 2020, it was reported that India had settled its claim with Nissan after a state government agreed to pay up to US$238m to end the investment treaty claim brought by Nissan under the UNCITRAL Arbitration Rules pursuant to the investment chapter of the Japan-India Comprehensive Economic Partnership Agreement.[1]

The arbitration related to promised incentives to build a car factory, which incentives India allegedly failed to pay. Nissan filed its treaty claim in 2017 before the Permanent Court of Arbitration with a Singapore seat, alleging breaches of the treaty’s fair and equitable treatment standard. The Tribunal upheld its jurisdiction in 2019. At the time of settlement, India had been in the process of challenging the jurisdictional decision before the Singapore International Commercial Court.

This adds to India’s strong track record of settling arbitrations. These include several arbitrations brought by banks (BNP Paribas, Credit Lyonnais, Standard Chartered, and others) arising out of India’s alleged failure to protect the banks’ loans provided in relation to the same power plant project in India.[2]

3. India loses two tax-related investment arbitrations

In the second half of 2020, India lost two high-profile disputes in relation to application of retroactive taxes, Vodafone v India and Cairn Energy v India.

In September 2020, Vodafone won US$2bn in an arbitration brought under the UNCITRAL Arbitration Rules with a Singapore seat against India over a retroactively applied tax. In that case, India’s tax authority tried to apply withholding tax to Vodafone’s purchase of a Cayman Island entity with an interest in an Indian cell phone operator. The Tribunal found that imposing such tax was in breach of the India-Netherlands BIT. In December 2020, India challenged the award in the Singapore High Court where the case remains pending.

Also in December 2020, Cairn Energy won US$1.2bn in an arbitration against India over a similar issue, a retroactively applied capital gains tax. The Tribunal found that India breached the India-UK BIT. As of the date of this blogpost, no challenge has yet been filed.

Given India’s poor track record in defending investment arbitrations related to tax issues, its new model BIT seeks to exclude such disputes from the scope of investment protection.

4. Damages award in Devas v India 

This arbitration was brought in July 2012 under the India-Mauritius BIT before the UNCITRAL Arbitration Rules with a seat in The Hague over the cancellation of an agreement to lease satellite broadcasting spectrum. In July 2016, an award was issued by the Tribunal on the merits against India. India challenged the merits award in the Netherlands without success. The case then proceeded to the damages phase and in October 2020, the Tribunal issued its damages award.

The key question during this phase was whether Devas should be valued under a discounted cash-flow (DCF) model. India argued that the DCF model was not appropriate as the company had no historic operational activity. However, the majority of the Tribunal agreed with the Claimants that the company’s business plans were sufficient to provide clear projections about its future profits and awarded them more than US$111m on the basis of a DCF model.

India’s arbitrator nominee, Anil Dev Singh, wrote a dissenting opinion, rejecting the application of the DCF model due to too many uncertainties and favoured awarding sunk costs instead.

5. India continued failure to comply with adverse awards 

There are a number of awards against India which remain unpaid.[3] India has sought to resist enforcement of those awards, even after failing in set-aside proceedings.

The latest decision to follow this pattern of conduct was issued in September 2020 by the Supreme Court of India. This relates to a 2011-award against India for US$278m by a Kuala Lumpur-seated Tribunal in relation to a decades-old oilfield dispute.

After the award was issued, India attempted to set it aside before the courts of the seat in Malaysia, which was dismissed by the High Court, a decision later upheld by the Court of Appeal and the Federal Court (the highest court in Malaysia).

Notwithstanding its failure at all instances to set aside the award, India still did not make payment on the award so the Claimants brought a lawsuit in the Delhi High Court to enforce it. India challenged the enforcement on the basis of a statute of limitation defense, arguing that the award should have been enforced three years after it was issued.

This challenge went from the Delhi High Court to the Supreme Court of India which in September 2020, in Government of India v Vedanta Limited & others, found that the enforcement was lodged in good time.

The award remains unpaid to date.

[1] Global Arbitration Review, Nissan settles treaty claim against India, 29 May 2020.

[2] UNCTAD, Investment Policy Hub, India, available at https://investmentpolicy.unctad.org/investment-dispute-settlement/country/96/india.

[3] See, e.g., Government of India v Vedanta Limited & others, Supreme Court of India, September 2020; Reuters, India challenges Vodafone arbitration ruling in Singapore, 24 December 2020.