Introduction
In the realm of the enforcement of foreign arbitral awards in India, the more prevalent international commercial arbitrations (ICA) often outnumber their comrades — investment treaty arbitrations (ITA). In India, the enforcement of foreign arbitral awards in legislated by the Arbitration and Conciliation Act of 1996[1]. Both domestic and international commercial arbitral awards are covered within the ambit of this statute. The legal conundrum with regard to the Act’s scope lies in the area of investment treaty arbitral awards; these foreign awards result from a sovereign country’s international investment agreements. These agreements are signed by countries at various levels to safeguard the investment of their investors in other countries. These safeguards are accompanied by dispute resolution mechanisms that allow investors to opt for proceedings against a State in the event of an alleged transgression of the agreement.[2] Thus, ITAs form an essential component of foreign awards, in addition to the more common ICA awards.
In India, the enforcement of investment awards is a complicated affair due to the lack of any specific domestic legislation and its abstention from being a party to the relevant international convention. The Convention on the International Centre for Settlement of Investment Disputes between States and Nationals of other States (ICSID Convention) allows for the enforcement of investment awards in the jurisdictions of the signatory member States. It also provides safeguards against the challenge of such awards in domestic jurisdictions. In many of India’s bilateral investment treaties (BITs), there are provisions to make use of the ICSID Additional Facility Rules or for ad hoc arbitrations through United Nations Commission on International Trade Law[3] (UNCITRAL Rules). Since the Convention does not apply to such proceedings and the resultant awards, these are not free from enforcement encumbrances as compared to ICSID awards.[4]
The Arbitration and Conciliation Act, 1996 and investment awards
In order to further delve into the current position of the enforceability of investment awards in India, a closer examination of Part II of the Arbitration and Conciliation Act is needed. Part II has been drafted keeping in mind the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958[5], (the New York Convention).[6] This allows for the recognition and the subsequent enforcement of foreign arbitral awards in India, through the Arbitration Act. In the present context, both the reservations offered by the Convention are relevant; India adopted both the reciprocity reservation and the one where the Convention would only apply to disputes that were considered commercial under Indian domestic law.[7] At this juncture, it is essential to discern ICA awards from that of ITAs. In the former, disputes could arise due to private agreements and contractual agreements, but in the latter the root of the dispute arises from disharmony between a foreign investor and a sovereign State. In the event of an award against the sovereign host State, pecuniary damages will have to be paid to the foreign investor due to a breach of treaty obligations, thus not due to any commercial reason. This distinction has ensured that ITA awards are not considered as foreign awards by certain courts in India; the commercial nature of a dispute would not accord it the status of being commercial as per Indian domestic law. There is scarce clarity in the discourse surrounding the word commercial. In the Commercial Courts Act, Section 2(1)(c)[8] defines the term commercial disputes and lists various kinds of disputes that could be covered under the ambit of the definition. In sub-section (1)(c)(xxii), the Central Government is given the prerogative of notifying any such additional commercial dispute. The section also clarifies that parties to the dispute being States or their agencies/instrumentalities would not preclude the dispute from being a commercial dispute.[9] In Union of India v. MV Hoegh Orchid[10], the High Court of Gujarat assigned a broad ambit to the word commerce. It said that commerce would cover “business and trade transactions in any of their forms … between the citizens of different countries”.[11] In R.M. Investment and Trading Co. (P) Ltd. v. Boeing Co., the Supreme Court of India opined that the word commercial should be construed in an expansive manner where dispute settlement in matters of international trade, through the New York Convention, is completed swiftly.[12]
India’s tryst with BITs
India has had a mixed experience in dealing with the enforcement of investment arbitration awards. In the 1990s, India first dabbled with the BIT regime, when it signed its first BIT with the United Kingdom in 1994. This model was suited to countries with higher levels of economic development, where higher protection was offered to investors, as compared to the State. Similar BITs were signed by India with other countries, where focus was placed on investor protection, rather than the State; this model was not suitable for a third world country that had only recently liberalised its economy. The ramifications of such investor-friendly BITs started to shows themselves with the dispute of the Dabhol Power Project, in 2011.[13] The Dabhol Power Corporation was a joint venture comprising Enron Corporation, General Electric Corporation and Bechtel Enterprises. The DPC entered into an agreement with the Maharashtra State Electricity Board, a government entity, to supply power in Maharashtra. Certain internal and external factors led the Board to terminate its contract with DPC. After failed attempts by DPC to initiate arbitration proceedings, it proceeded to initiate investment treaty arbitration proceedings through the Indo-Mauritius BIT. The matter was later settled confidentially, but there have been certain estimates that the settlement figure touched a billion dollars. It should be noted here that the reasons for cancellation of the contract were politically strategic since public perception viewed this project as unnecessarily expensive. Such decisions, in an investor-friendly treaty could have ironical consequences for Governments, where such finance conserving decisions could backfire.[14] In this case, a settlement was reached before an award could be passed, but in the ITA of White Industries, the conclusion was a wake-up call for the Indian political establishment. An Australian mining giant, White Industries, entered into a mining contract with the Indian governmental entity Coal India. After some disputes arose between the parties, they proceeded to initiate arbitration proceedings that ultimately ruled in favour of White Industries. Coal India filed an application before the Calcutta High Court to set aside the award, whereas White Industries moved the Delhi High Court to enforce the award. After numerous delays before the High Courts and then the Supreme Court, White Industries initiated arbitration proceedings under the India-Australia BIT. The Tribunal formed as per the treaty ruled in favour of White Industries as well. The Tribunal entered troubled waters when it opined that India, as the host State, had failed to provide effective means to White Industries to enforce its claims. It borrowed this provision from the India-Korea BIT after using the most favoured nation doctrine of international law.[15] The Indian Government surprisingly accepted the decision of the Tribunal and paid approximately AUD 4 million to the investors. The White Industries debacle ensured that Indian authorities had finally seen the potential harm that such investor-friendly BITs could do to both the economy of the country and their political image.
In the subsequent few years, there were more ITA proceedings that were initiated against India against sovereign Indian regulatory policies.[16] Since then, India has attempted to control the potential damage by revisiting the terms of BITs and adopting a pro-State, as is visible in the 2016 Model BIT.[17] In recent times, certain High Court rulings have further added to the existing uncertainty around the enforceability of investment awards. The disagreement amongst Indian High Courts largely centres on the applicability of the Arbitration Act on ITAs. In Port of Kolkata v. Louis Dreyfus Armatures SAS[18], the Calcutta High Court ruled that such arbitrations would attract the provisions of the Arbitration Act. In Louis Dreyfus[19], Kolkata Port Trust had filed an anti-arbitration injunction against Louis Dreyfus from proceedings with investment arbitration proceedings through the India-France BIT. The Court held that in this scenario, the Republic of India should be a party to the proceedings, and not the Port, since the State signed the BIT. The Court simply assumed that the Arbitration Act could be applied to ITAs and ruled on the application.[20] In contrast to this holding, in more recent times, the Delhi High Court has taken a complete contrary view. In Union of India v. Vodafone Group Plc United Kingdom[21], the Union of India approached the Court for an anti-arbitration injunction. It argued that the Vodafone Group be restricted from instituting an investment arbitration under the India-UK BIT, since its subsidiary had already initiated investment arbitration proceedings under the India-Netherlands BIT. The Delhi HC declined to intervene and ruled that domestic courts did not have the jurisdiction to intervene in ITAs in the ordinary course of their functioning and would intervene only in exceptional circumstances. The Court stated that ITAs were distinct from ICAs, and that they did not come under the commercial scope of the Indian arbitration Act. The Court further reiterated its earlier Vodafone[22] stand in Union of India v. Khaitan Holdings (Mauritius) Ltd., where it is stated that the Code of Civil Procedure would govern BITs.[23]
In another publicised dispute, Cairn Energy initiated arbitration proceedings against the Indian Union against its retrospective amendment to Indian Income Tax laws; these amendments had ensured that a liability of 1.6 billion was imposed on Cairn Energy on capital gains during a restructuring attempt in the early 2000s. In December 2020, the constituted tribunal through the 1994 India United Kingdom BIT ruled in favour of Cairn and directed the Indian State to pay $1.2 billion as a result of violation of the BIT’s provisions. Such uncertainty has ensured that investors make an attempt to locate the assets of the award debtor in other jurisdictions, and instituting proceedings there.
The future of the Indian State and BITs
The present uncertainty in this area of lawmakers, and its possible resolution in the future is a complex process. In order to comment on the future Indian position on the enforceability of investment treaty arbitrations in India, it is essential that the nature of stakeholders in ITAs and ICAs be distinguished. The former arises due to breach of international treaty obligations whereas the latter is a more private affair. In the latter, disputes between private parties will be arbitrated upon, where a quicker alternative to the traditional legal system is sought. In the former case, the breach of treaty provisions ordinarily occurs through an official function or regulation of a State in exercising its sovereign functions. These functions and/or regulations could range from monetary and fiscal policies, environmental regulations, amongst others that could fall under the ambit of the ITA dispute. Any decision against a country would involve ramifications of a political nature, and would affect the country taxpayers, and not just private entities. This was seen in Blue Ridge Investments, LLC v. Republic of Argentina[24], where the Tribunal ruled Argentina’s financial emergency provisions to be infringing the Argentina United States of America Bilateral Investment Treaty. With India becoming the hotbed for foreign investment in the last few years, the enforceability of ITA awards could be problematic from the perspective of the Indian Government. In Maharashtra Power Development Corporation Ltd. v. Dabhol Power Co.[25], although the parties entered into a confidential settlement, it has been estimated that the Indian Government paid a settlement amount of approximately 1 billion US dollars to the investors. An increase in foreign investment in India shows a strong correlation with the number of investment treaties signed by India. In the event that the approach of the Calcutta High Court in Dreyfus[26] does end up being the law of the land, Conditions for Enforcement foreign awards as mentioned in Section 48[27] of the Act will gain importance, as the host State could make use of such provisions to challenge the enforcement of the award. The public policy aspect of the provision will come into further emphasis. In Shri Lal Mahal Ltd. v. Progetto Grano Spa, the Supreme Court held that a foreign award, under Section 48, could be refused on grounds of it violating the fundamental policy of India, interests of India, and justice and morality.[28] Although the interests of India requirement was removed vide the 2015 Amendment to the Act, but for a policy discourse (and pre-amendment disputes), the interests of India in the policymaking perspective could influence the Government’s approach while devising ITA enforcement mechanisms in the future.
In the Dabhol[29] and Vodafone[30] cases one can see the quantum of sums involved in such ITAs; the imposition of such a financial burden on the taxpayers of an economically developed country such as India would not be seen as politically and economically favourable. In the model Indian bilateral investment treaty prior to 2016, the guiding dispute resolution article allows foreign investors to hold the Indian State accountable to treaty violations. In the abovementioned model treaty, there is no mandatory requirement to exhaust all domestic remedies before the institution of such proceedings before submitting the dispute to international treaty arbitration. The 2016 model BIT rectifies such lacunae by mandating the exhaustion of local remedies with a time frame before submitting the dispute to arbitration. The extensive dispute resolution chapter of the new model BIT has been drafted to halt the spew of BIT arbitrations that have followed White Industries Australia Ltd. v. Coal India Ltd.[31] In this model BIT, the amount of power that has been placed in the hands of the State is significantly higher than the earlier treaties; albeit this place higher power in the hands of the Indian State, but it leaves Indian foreign investors struggling to receive compensation from foreign governments.[32]
In England and Wales, unlike India, courts have the jurisdiction to entertain matters related to investment awards. The United Kingdom is a signatory to the ICSID Convention and through its Arbitration (International Investment Disputes) Act of 1966, bestows the same authority on ICSID awards as if they were decrees of English Courts. In Republic of Ecuador v. Occidental Exploration and Production Co., the England and Wales Court of Appeal held that English Courts could rule on matters relating to investment arbitration awards.[33] Singapore is also a signatory of the ICSID Convention; Singaporean courts, though it is amended International Investment Disputes Act, entertain matters relating to ITAs. Singapore has not received an application to enforce foreign investment arbitral awards but have heard challenges to such Singapore-seated awards. In Swissbourgh Diamond Mines (Pty) Ltd. v. Kingdom of Lesotho, the High Court successfully set aside the award due to the Tribunal exceeding its jurisdiction.[34] It is important to recognise that unlike India, the UK and Singapore have not opted for the commercial reservation of the New York Convention, and their domestic courts can entertain ITA matters; both these countries are signatories to the ICSID Convention as well.
Conclusion
The landscape of the enforcement of ITAs in India is ambiguous at best, and not only does it fail to support objectives of the investor, but also does little to support the State. In several areas of the law, the limited judicial intervention has worked wonders for unorthodox dispute resolution mechanisms, but in this sphere, certain certainty and proportionate judicial intervention is needed. The differing rulings of the Delhi and Calcutta High Courts have left the stakeholders in a lurch, with great uncertainty to the extent of a judicial intervention. Uncertain areas of the law such as public policy have further complicated the enforcement of foreign awards in the investment arbitrations context. If one were to recall the disputes of Dabhol[35], White Industries[36], and Vodafone[37], it would appear that an uncertain enforcement regime might temporarily play into the hands of the Government, providing them interim respite from the flood of BIT proceedings that could be initiated against them. It is essential that in the long run, either the Supreme Court lays down the law of the land in this aspect, or a partially new structure be enacted by the Government for governing ITA awards; this structure should strive to achieve a holistic balance between the rights of the State and parties to the treaty, while considering the differences between ITAs and ICAs. It is also incumbent on the State to understand that despite its sovereign powers on domestic law, it needs to adopt a balanced approach to maintain its goal of increasing ease of business in India. The new model BIT complemented by strong legislation and policies could ensure that India’s problematic history with BITs does not repeat itself.
† Advocate practicing in Mumbai, e-mail: rishit@vimadalal.in.
[1] <http://www.scconline.com/DocumentLink/QWdt5a4f>.
[2] United Nations Conference on Trade and Development. 2004. International Investment Agreements: Key Issues. [Online] <https://unctad.org/system/files/official-document/iteiit200410_en.pdf> accessed on 28-10-2020.
[3] <http://www.scconline.com/DocumentLink/q0V16q1A>.
[4] S.R. Subramanian, BITs and Pieces in International Investment Law: Enforcement of Investment Treaty Arbitration Awards in the Non-ICSID States: The Case of India, 14 J. World Investment & Trade 198 (2013).
[5] <http://www.scconline.com/DocumentLink/uqd961oJ>.
[6] Fali S. Nariman, “India and International Arbitration”, 41 Geo. Wash. Int’l L. Rev. 367 (2009).
[7] India – New York Convention, New York Convention Guide (2011), <https://bit.ly/369ddP4> (last visited 4-11-2020).
[8] <http://www.scconline.com/DocumentLink/5b7H7AX1>.
[9] The Commercial Courts Act, 2015, No. 4, Acts of Parliament, 2016.
[11] Ibid.
[13] Gus Van Harten, “TWAIL and the Dabhol Arbitration”, 3 Trade L. & Dev. 131 (2011).
[14] Ronald J. Bettauer, “India and International Arbitration: The Dabhol Experience”, 41 Geo. Wash. Int’l L. Rev. 381 (2009).
[15] S.K. Dholakia, “Investment Treaty Arbitration and Developing Countries: What Now and What Next? Impact of White Industries v. Coal India Award”, 2 Indian J. Arb. L. 4 (2013).
[16] Manu Sanan, “The White Industries Award – Shades of Grey”, 13 J. World Investment & Trade 661 (2012).
[17] “Bilateral Investment Treaty Arbitration and India, With Special Focus on India Model BIT, 2016”, Nishith Desai (2018) <https://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research_Papers/Bilateral_Investment_Treaty_Arbitration_and_India-PRINT-2.pdf> (last visited 2-11-2020).
[18] 2014 SCC OnLine Cal 17695.
[19] 2014 SCC OnLine Cal 17695.
[20] Delphine Constantin, “Indian Case Law Review (2014-2015): Anti-Arbitration Injunctions”, 2015 Int’l Bus. L.J. 409 (2015).
[21] 2018 SCC OnLine Del 8842.
[23] 2019 SCC OnLine Del 6755.
[24] No. 12-4139 (2nd Cir 2013).
[25] 2003 SCC OnLine Bom 1128.
[26] 2014 SCC OnLine Cal 17695.
[27] <http://www.scconline.com/DocumentLink/1f9D98bq>.
[29] 2003 SCC OnLine Bom 1128.
[30] 2018 SCC OnLine Del 8842.
[32] “Bilateral Investment Treaty Arbitration and India, With Special Focus on India Model BIT, 2016”, Nishith Desai (2018) <https://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research_Papers/Bilateral_Investment_Treaty_Arbitration_and_India-PRINT-2.pdf> (last visited 2-11-2020).
[33] 2006 QB 432 : (2006) 2 WLR 70; Devashish Krishan, Introductory Note to United Kingdom Supreme Court of Judicature Court of Appeal (Civil Division): Occidental Exploration and Production Company v. Republic of Ecuador, 45 ILM 246 (2006).
[34] 2018 SGCA 81.