Improving investment environment

During the 2014 elections, the most oft-repeated mantra of the Bharatiya Janata Party (BJP) was "Make in India". The BJP had promised that if elected, it could improve the investment environment on all fronts to make India attractive for foreign investors. It set about amending the Arbitration Act first by an ordinance and later by the amendment of the act. It also created commercial courts to fast-track international commercial arbitration.

When international companies and foreign governments invest in the country, they enter into a Bilateral Investment Treaty with India, the host Country.

The standard bilateral investment treaties in current use in India are rigid and inflexible and the laws of the host state as well its court system have near exclusive application.

Under the Indian Bilateral Investment Treaty, exhaustion of local remedies is a mandatory condition. This means going through the hierarchy of courts in the host country. If all this fails to get any relief to either of the parties, there is one more additional step to be traversed before commencing the arbitration proceedings, and this would be mediation by a third party, a mechanism which would not be binding on the parties.

Thus, even at the cost of being repetitive, it will be appreciated that only (a) after exhausting local remedies, and (b) after submitting to a third party mediation which binds neither of the parties, can one even initiate the arbitration proceeding in the host country. The procedural laws and the jurisdiction of the Host country usually apply to the dispute.

Similar onerous conditions are found in the bilateral treaties of England.

Let us not forget that the fundamental principle of International relations is based on the principle of reciprocity. And so, when we stack up onerous conditions in our bilateral treaties so would the investing countries which are at the receiving end of such treatment from India.

With globalisation, where countries invite foreign capital and investments in their home turf, it is important to provide expeditious, cost effective and credible mechanisms for dispute resolution; and these should be both expeditious and should inspire the confidence and trust of the disputing parties.

Recognising this felt need the member countries of International Bank for Reconstruction and Development (IBRD) had conceived of a body for such resolution of international investment disputes arising out of international investment treaties. The International Centre for Settlement of Investment Disputes (ICSID) was established by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (commonly known as the ICSID Convention), which came into force after 20 countries had ratified it on October 14, 1966. As on December 15, 2015, 161 members have signed and ratified the Convention.

The clearly stated purpose of the Centre is "to provide facilities for conciliation and arbitration of investment disputes between Contracting States and nationals of other Contracting States in accordance with the provisions of this Convention". A non-member country cannot avail of the mechanisms provided by the Centre.

I was rather shocked to find out that India had neither signed nor ratified the ICSID Convention. The Indian Government has gone around the world asking both expatriates and foreign governments and corporations to 'Make in India'. It has also promised that it would be an investor friendly government. If this is so the first step, it should take is to sign this Convention and become a member State.

The Centre provides two mechanisms for resolution of investment disputes viz. conciliation and arbitration. A commission hears conciliation proceedings, while a Tribunal conducts the arbitration.

The Tribunal has got full powers to decide all aspects of its procedure. As soon as the Secretary-General receives the request from one of the member states, he/she notifies the other party to the dispute. Each one of the parties can appoint an Arbitrator who can be of its nationality or from any other nationality and third Arbitrator can be appointed by the two arbitrators or if they fail to reach an agreement, by the Chairman.

There can be any number of arbitrators as decided by the parties so long as they are an odd number.

The Parties decide the law applicable, both the substantive law and the procedural rules and the award of the Tribunal given in maximum 120 days after the proceedings are concluded.

If the parties agree, the Tribunal can make an interim order to protect the subject matter of the dispute. The award given by the Tribunal will be binding on the parties, and the host country will be obligated to enforce the award as though it were a judgment been given by its highest court.

To protect the privacy of any settlement arrived at between the Parties the award of the Tribunal is reported only if the parties to the settlement have no objection to such publication.

The rules for conducting the Arbitration proceeding are all provided for under the provisions of the Convention which also prescribes the time limit for compliance at the different stages which makes for an effective and expeditious relief to the aggrieved Party.

It would be wonderful if India immediately signs the convention and ratifies it. It would encourage more countries to invest in India as delays in the Indian Court system is well known to everyone.

By this method of Dispute Resolution arising out of the treaties, one can bypass the overworked Indian legal system as well as avoid getting embroiled in many technical issues that may arise from conducting Arbitration proceedings under the Arbitration Act 1996. I say this because Arbitration proceedings in actual practice have proved to be both as dilatory and as expensive as litigation in Courts.

On March 7, 2017, The Indian Express reported that the Government of India is committed to making available the equivalent of USD 3 billion to the National Investment and Infrastructure Fund (NIIF). This Fund is designed to work in partnership with long term Global Investors in infrastructure projects.

While such aspirations of the country are most welcome, they should also be backed by urgent steps taken to provide effective measures to resolve disputes that arise through International Investment Treaties.

Will the government please get its act together?!