Indian Investments and BITs

Context: Sri Lanka’s pullout from the Colombo port deal calls for rethinking India’s approach towards Bilateral Investment Treaties (BITs).

Concept of legitimate expectations:

In a case known as International Thunderbird Gaming Corporation v Mexico, it was held that the concept of legitimate expectations relates to a situation where the host state’s conduct creates reasonable and justifiable expectations on the part of an investor (or investment) to act in reliance on said conduct, such that a failure to honour those expectations could cause the investor (or investment) to suffer damages.

India-Sri Lanka BIT

• Objective: Signed in 1997 to promote and protect foreign investment in each other’s territories.
• Protections available to foreign investors:
  • Investor-State Dispute Settlement (ISDS): Investor can approach an international tribunal if the investor believes that the host state has breached its treaty obligations.
  • Fair and Equitable Treatment (FET) provision: Investments and returns of investors of each country have to be accorded FET in the other country’s territory. 
    • This mandates the host state to protect the legitimate expectations of foreign investors.
  • Provisions related to Unilateral Termination: As per ‘survival clauses’, the treaty shall continue to be effective for a further period of 15 years in respect of investments made or acquired

Issues with India’s BIT with SriLanka: India had unilaterally terminated the BIT in 2017, following a protectionist policy as a result of several ISDS claims being brought against it.

• ‘Survival clauses’ becomes inapplicable: As the withdrawal was in 2017 while the agreement for ECT was signed in 2019.
• Future threats to BITs: include rising regulatory risks in the post-COVID world subjecting foreign investment to arbitrary and whimsical behaviour of countries.

Way forward:

• Acknowledging BITs as reciprocal:  BITs do not empower merely foreign investors to sue India, but also authorise Indian investors to make use of BITs to safeguard their investment.
• Adopt a balanced approach towards BITs with an effective ISDS provision: facilitate Indian investors in defending their investment