[Yagya Sharma and Paridhi Rastogi are final-year law students at Institute of Law, Nirma University]


International Centre for Settlement of Investment Disputes (ICSID) is a platform for the settlement of investment disputes between a state party to the Convention and private foreign investors. By becoming a party to the Convention, states instil the confidence of private foreign investors and provide assurance to potential investors that they would have recourse to an independent dispute settlement mechanism in a scenario where they lose their investment through expropriation, nationalisation or other government actions. However, being a part of the Convention and referring investment disputes to ICSID would demonstrate lack of confidence in the judiciary of the host country. Therefore, several developing states took the stand that any dispute arising out of expropriation or nationalisation should be resolved by applying the national laws of the states and by resorting to the local remedies provided for in the national laws and constitutions of the host states.

India is one such state which has been reluctant to become a party to the convention, even when India's neighbours such as Pakistan, Bangladesh, China, Sri Lanka and Nepal have already signed and ratified this Convention. This article seeks to explore the reasons that have compelled India to stay away from ICSID. Further, it will also attempt to examine the validity of those reasons.

India’s Perspective

In the past, the Indian Council for Arbitration has recommended to the Indian Ministry of Finance that India should refrain from becoming a signatory to the ICSID Convention on the following grounds:

● the Convention’s rules for arbitration leaned towards the developed countries; and

● there is no scope for a review of the award by an Indian court even if it violates India’s public policy.

Apart from this, India has taken the position that a foreign investor may encroach upon India’s sovereign right to regulate through the ICSID Convention. Another reason for maintaining distance from ICSID is that ICSID tribunals have been inconsistent in ascertaining the definition of investment under Article 25(1) of the ICSID Convention. The number of economic characteristics essential for an asset to satisfy the definition of investment has fluctuated from time to time. It must be taken into consideration, that in Salini vs. Morocco, an asset was held to be an investment, only if it satisfies the investment criterias, namely, (a) certain duration of investment; (b) assumption of risk; (c) a substantial commitment; and (d) contribution to the host state’s development. The last test remained a cause for controversy. On the contrary, in Phoenix vs. Czech Republic, the Tribunal did not strictly adhere to the Salini test, and diverging from the same, provided its own rendition of the characteristics, i.e., a contribution in money or other assets; a certain duration; an element of risk; an operation made in order to develop an economic activity in the host State; as well as assets invested in accordance with the laws of the host State; and assets invested bona fide. This trend of divergence from the Salini’s test has been followed in various other cases, thereby creating uncertainty which often harms the states before the ICSID Tribunals.

Further, ISDS suffers from certain shortcomings and requires overhaul. The same has been acknowledged by the UN Commission on International Trade Law when it entrusted the Working Group III with a broad mandate to work on the possible reform of the ISDS framework. The Working Group identified that the length and costs of arbitral proceedings are rising, the independence and impartiality of arbitrators is also a major concern. Apart from this, there are also criticisms about the lack of transparency and possibilities for third parties to participate in proceedings. Further, Arbitral awards are criticized for their lack of consistency and for being contradictory.

Need to Sign ICSID

India’s stance can be explained through its past experience with ISDS Tribunals. Since 2011, India has been subjected to a plethora of investment treaty claims. Most of these claims resulted from the regulatory changes undertaken by India in the telecom and taxation frameworks. Out of these several claims, the tribunal in majority of cases decided in the favour of investors. White Industries v. India is one landmark case where the tribunal had rejected India’s claims and ruled in favour of investor. Devas v. India, Vodafone v. India (I), Cairn v. India are few other decisions that have been in investors’ favour. Most recently, in Vodafone v. India (II), the international arbitral tribunal held that India had violated the ‘fair and equitable treatment’ guaranteed to Vodafone under the 1995 Bilateral Investment Promotion and Protection Agreement between the Republic of India and the Kingdom of Netherlands.

The above decisions display India’s negligence to insert broad and vague provisions such as the Most- Favoured Nation Clause and Fair Equitable Treatment clause in its BITs. Further, it is imperative to note that none of the claims have been brought against India for exercising its sovereign public power in good faith. Also, no claim shows that foreign investor used ISDS to encroach upon India’s sovereign right to regulate. The primary reason for all claims in the above cases is either the slow enforcement by the Indian judiciary or because the executive acted in bad faith. It shows that there exist legitimate reasons for these cases to end up in ISDS. Therefore, no reason for India’s hostile attitude towards ISDS seems justified.

It is pertinent to note that ICSID awards are automatically enforceable in signatory jurisdictions. As India is not a signatory to the ICSID Convention, it is not obliged to offer immunity to ICSID awards from challenge in national courts. In India, the mechanism for enforcement of domestic and foreign arbitral awards are contained in the Arbitration & Conciliation Act, 1996 (A&C Act). However, in Union of India v. Vodafone Group PLC United Kingdom & Anr. and Union of India v. Khaitan Holdings (Mauritius) Limited & Ors, the Delhi High Court has held that the A&C Act applies only to arbitrations which are considered ‘commercial’ under Indian law. Concluding that investment arbitration disputes are fundamentally different from commercial disputes; therefore, arbitral proceedings under a BIT is outside the purview of A&C Act. The position of the High Court in above two cases creates uncertainty in the legal framework. In such a scenario, a foreign investor holding a favourable treaty award will have no certain recourse to enforce his award.

India is the fastest growing economy in the world and it promises a stable legislative and regulatory framework for foreign investment. According to the 2020 FDI Policy, the Government of India declared that its “intent and objective are to attract and promote FDI” through a “a policy framework on FDI, which is transparent, predictable and easily comprehensible”. This must encourage foreign investors to bank on India with their investments. However, the uncertainty regarding the appropriate forum for enforcement of foreign investment awards causes hindrances in implementing the FDI Policy. Further, according to the ‘Ease of Doing Business 2020’ report by the World Bank, India currently ranks 163 out of 190 countries in ease of enforcing contracts, and it takes 1,445 days and 31 per cent of the claim value for dispute resolution, which proves to be nugatory in enhancing confidence in foreign investors.

In this backdrop, it becomes important for India to become a signatory of ICSID and declare to the world that it is ready to be held accountable for its actions. ICSID will bring certainty for investors and it will assure them that India will accept a decision delivered by a neutral tribunal following ICSID Rules.


While on one hand, India has been quite vocal about promoting FDI (as apparent from India’s FDI policy 2020 mentioned above), on the other hand, by not becoming a part of ICSID, India appears to be acting contrary to its approach. ICSID Rules have several advantages, for instance, they do not allow judicial review, which increases the degree of finality of arbitrator’s decision. Further, the availability of the ICSID Tribunals to resolve disputes will be attractive for potential investors. This will indirectly promote FDI, as foreign investors will have one more incentive to invest, in the presence of an objective forum to resolve their disputes. Moreover, ICSID will protect the Indian courts from having to bear the burden of resolving time-consuming BIT claims, consequently, preserving judiciary's money and resources.

Further, India’s concerns with ICSID also seems to have been addressed through India’s Model BIT, 2015, The Model BIT has helped India reposition itself to a protectionist approach concerning foreign investments instead of an investor-friendly approach . Since its adoption, India has unilaterally terminated over 58 of its existing Bilateral Investment Treaties showing its lack of trust in ISDS. The Model BIT has been subject to criticism for being biased in favour of the host State. Changes like narrowing down the definition of “investment” to qualify for BIT protection and mandating exhaustion of domestic remedy prior to initiating international arbitration proceedings makes it difficult for foreign investors to invoke BIT protection. However, even after introducing such a Model BIT which mitigates all concerns relating to ICSID, it is unknown why India is not changing its position with regards to ICSID.

16 views0 comments