RECENT DEVELOPMENTS IN INDIA-RELATED INVESTMENT TREATY ARBITRATION

In this issue we consider India-related investment treaty developments (“BITs“), starting with the signing of India’s new BITs with Belarus and Taiwan.

We then consider new investment treaty claims commenced by Indian investors against Saudi Arabia and Macedonia, as well as new claims commenced against India, including the potential claim brought by a Portuguese investor and the new claim under the India-Korea BIT brought by KOWEPO.

We also cover the developments in existing BIT claims, such as India’s first win in a BIT claim and the settlement negotiations in the Nissan BIT claim against India.

New Treaties

  • India signs new BITs with Belarus and Taiwan and agrees joint interpretative statement with Colombia and Bangladesh.

As we previously reported in April 2015 and January 2016, the Government of India published a new model BIT (the “Model BIT“) to serve as a template for future BIT negotiations. Later in 2017, India decided to terminate 58 of its existing BITs.  The Model BIT limits the protections afforded to investors perhaps as a reaction to the number of investor claims against India in recent years.

India has since entered into a BIT with Belarus in September 2018 (available here) and with an investment promotion organisation in Taiwan in December 2018 (available here). Both BITs largely follow the text of the Model BIT including in the definitions of ‘investor’ and ‘investment’, exclusion of the fair and equitable treatment standard and detailed requirements on exhaustion of local remedies.

The “India-Taiwan” BIT is between the India Taipei Association and the Taipei Economic and Cultural Centre rather than between two nation states.  India’s Department of Economic Affairs currently notes that draft BITs based on the Model BIT are “under discussion” with a number of countries including Switzerland, UAE, Hong Kong, Israel, Mauritius and Iran.

Separately, in 2016, India circulated a proposed joint interpretative statement to be agreed with the counterparties to its existing BITs that were not then capable of being terminated (25 countries), seeking to align those BITs with the Model BIT.  In October 2018, India and Columbia concluded a joint interpretative statement regarding the India-Columbia BIT of 2009.  India had previously concluded a similar interpretative statement with Bangladesh in 2017.

New BIT Claims

  • Indian investor Khadamat Integrated Solutions Private Limited pursues BIT claim against Saudi Arabia

As reported here, Indian investor Khadamat Integrated Solutions Private Limited has brought a claim against Saudi Arabia under the India-Saudi Arabia BIT. It has been reported that the dispute concerns a large-scale development project in Saudi Arabia but no further details are available. The Permanent Court of Arbitration (“PCA“) is administering the claim with a tribunal already formed under the UNCITRAL rules. Eric A. Schwartz has been appointed as chair by the co-arbitrators to sit alongside Franco Ferrari (nominated by Khadamat) and Rolf Knieper (nominated by Saudi Arabia).

  • Tribunal constituted in a BIT claim by Indian investors against Macedonia

According to this report, the tribunal in a BIT claim by Indian investors against Macedonia has been constituted, with the President of the International Court of Justice appointing Nigerian arbitrator Funke Adekoya SAN as chair to sit alongside Robert Volterra (Indian investors’ nominee) and Brigitte Stern (Macedonia’s nominee).  The claim was allegedly commenced in 2017 by Gokul Das Binani and Madhu Binani under the India-Macedonia BIT of 2008. The claim reportedly alleges that Macedonia illegally expropriated mining concessions awarded to a London-based company (in which the investors were the only shareholders) and subsequently auctioned it to a Bulgarian company.  The arbitration is seated in Switzerland and governed by the UNCITRAL Rules.

  • India may face new claim from Portuguese investor

As reported here, the Indian government revealed that it may be facing a claim from a Portuguese investor currently identified only as Mascarenhas. While it is known that Mascarenhas is bringing the claim under the India-Portugal BIT, the details of the dispute remain undisclosed.

Although the India-Portugal BIT was terminated by India as of March 2017 alongside 58 other BITs (as we previously reported here), the India-Portugal BIT contained a 15-year sunset clause which protects investments made in India prior to the BIT’s termination date. Thus, while there are only very limited details of the claim, it is a useful reminder that claims may yet arise under the cancelled BITs provided they fall within the sunset provisions of the relevant treaty.

  • KOWEPO sends a notice of dispute under the India-Korea BIT and / or the Comprehensive Economic Partnership Agreement (CEPA) between India and Korea

According to this report, Korea Western Power Company (KOWEPO) has sent a notice of dispute to the Government of India in relation to a gas-based power plant in the state of Maharashtra.  KOWEPO, which owns 40% in Pioneer Gas Power Limited, the operator of the plant, has alleged that India has failed to honour its fuel supply commitments to the plant and has reportedly claimed US$ 400 million in damages.

Two treaties govern India’s obligations towards Korean investors – the India-Korea BIT of 1996 (for investments made prior to the termination of the India-Korea BIT on 22 March 2017) and the 2009 Comprehensive Economic Partnership Agreement (CEPA) between India and Korea.  It is unclear whether KOWEPO has initiated arbitration under one or both treaties.  While the substantive investment protection standards in these treaties are different, both treaties provide for a cooling off period of at least six months from the date of the notice of dispute.  If the dispute is not resolved in this period, KOWEPO is entitled to commence arbitration proceedings against India.

Developments in Existing BIT Claims

  • Tribunal awards India its first public win in a BIT claim, dismissing claims of French investor

An UNCITRAL arbitral tribunal reportedly dismissed a US$ 36 million claim by a French investor, Louis Dreyfus Armateurs SAS (“LDA“), against India under the 1997 France-India BIT. LDA claimed that India had breached its treaty commitment to provide full protection and security, in particular as regards LDA’s Indian joint venture employees and their families, and was also in breach for its failure to follow Indian court orders.  The tribunal reportedly found that it lacked jurisdiction over LDA’s claims since the BIT requires that an investor in an indirect investment hold at least 51% ownership in order to fall within the BIT’s protection.  LDA’s shareholding did not satisfy this threshold.  The award is not public at this time, but press reports state that LDA has also been ordered to pay approximately US$ 7 million in respect of India’s legal expenses.

A more detailed discussion of the decision is available on our blog here.

  • Tribunal in Nissan BIT case dismisses India’s objections and upholds jurisdiction

According to this report, the claim brought by Nissan under the Japan-India Comprehensive Economic Partnership Agreement (CEPA) is now progressing to the merits phase, with the tribunal upholding jurisdiction in a now public decision which can be found here.

As we had previously reported, the claim relates to withdrawal of incentive payments allegedly promised by the state government of Tamil Nadu pursuant to a 2008 agreement under which Nissan established a manufacturing facility in Chennai.

Despite settlement talks between the parties (which we previously reported on here), and the efforts by the state of Tamil Nadu to prevent the arbitration proceedings from happening (see here), the PCA tribunal applying the UNCITRAL rules has dismissed most of India’s objections to the tribunal’s jurisdiction.

India had objected to the tribunal’s jurisdiction on five grounds. First, it objected to the default appointment by the PCA of India’s nominee and the tribunal chair. Second, India claimed that Nissan had triggered a fork-in-the-road clause which barred it from bringing its claim to international arbitration. Third, India asserted that the claim was essentially contractual in nature, which meant the seat of the arbitration should have been Chennai, as stipulated in the 2008 agreement signed between the parties. Fourth, India alluded to CEPA’s three-year time bar, and contended that Nissan had first acquired knowledge of the alleged breach and loss three years prior to filing its claim. Finally, India argued that Nissan’s claim was barred entirely due CEPA’s exception for taxation measures.

The tribunal dismissed India’s first four objections (see detailed discussion here), and deferred its final objection to the merits phase, with the merits hearing set for February 2020. That jurisdictional award is now being challenged in the Singapore International Commercial Court.

  • Delhi High Court refuses to grant an anti-arbitration injunction restraining a BIT claim against India

In 2013, Khaitan Holdings brought a claim against India under the India-Mauritius BIT.  The claim arose from the Indian Supreme Court’s 2012 decision (and subsequent decisions of regulatory bodies in India) to cancel 2G spectrum licenses granted by the Government of India (the “GOI“), including one granted to Loop Telecom of which Khaitan Holdings was a shareholder.  The tribunal was not fully constituted until 2018 when Khaitan Holdings applied to the Permanent Court of Arbitration for the appointment of the presiding arbitrator to sit alongside Francis Xavier SC (Khaitan Holdings’ nominee) and Brigitte Stern (the GOI’s nominee).

The GOI then applied for an anti-arbitration injunction on the ground that (among other things) Khaitan Holdings is not a genuine and bona fide investor under the BIT as it is effectively controlled by Indian citizens.  In a decision of 29 January 2019, the Delhi High Court dismissed the application on the basis that the GOI’s arguments were jurisdictional in nature and ought to be raised before, and decided by, the tribunal.  The court expressly upheld the principle of kompetenz-kompetenz. In doing so, it relied on the earlier Delhi High Court decision in Union of India v Vodafone (which we covered on our blog here).

  • Indonesia defeats BIT claim by Indian Metals & Ferro Alloys Ltd

As reported here, Indian investor Indian Metals & Ferro Alloys Ltd (“Indian Metals“) has lost its claim against Indonesia brought under the India-Indonesia BIT. The dispute concerned alleged interferences with Indian Metals’ coal mining rights in the Indonesian region of Kalimatan. In a currently unpublished award, the England-seated tribunal, applying UNCITRAL rules, dismissed the investor’s claim and ordered it to bear certain costs. The tribunal was chaired by Neil Kaplan, sitting alongside Muthucumaraswamy Sornarajah (nominated by Indonesia) and James Spigelman (nominated by Indian Metals).

  • Hague court rejects set-aside of merits award in Devas case

According to this report, the Hague District Court has refused to set aside the merits award in the CC/Devas case against India brought under the India-Mauritius BIT.

In the merits award, the tribunal had found that India’s cancellation of a satellite lease contract was an unlawful expropriation and a breach of FET, but, in a split decision, also held that India was largely shielded from liability because of the BIT’s “essential security” clause.

India attempted to annul the award, and challenged the tribunal’s decision on jurisdiction and merits before the Hague District Court on three grounds. First, India alleged that the investor lacked a protected investment. Second, India argued that the tribunal had inappropriately dealt with its arguments on the “essential security” clause. Finally, India asserted that a domestic criminal complaint meant that the underlying satellite lease contract was void.

The Hague District Court rejected all of India’s objections. A detailed explanation of the Hague District Court’s reasoning can be found here.

  • Two treaty claims against India withdrawn ahead of hearing

As reported here, claims by Astro All Asia Networks and South Asia Entertainment Holdings, two affiliates of Malaysian satellite-TV group Astro, have been withdrawn.

As with the Khaitan Holdings case, these claims arose out of the Indian Supreme Court’s decision in the 2G spectrum licenses case.

The UNCITRAL tribunal based in Hong Kong (comprised of Michael J Moser (chair), Peter Leaver QC, and Lucy Reed) issued consent awards recording the withdrawal of both claims.

If you have any questions or would like discuss any aspect of this post, please contact Nicholas Peacock, Partner, Kritika Venugopol, Senior Associate, Nihal Joseph, Associate (India), Divyanshu Agrawal, Associate (India) or your usual Herbert Smith Freehills contact.

Nicholas Peacock
Nicholas Peacock
Partner
+44 20 7466 2803
Kritika Venugopal
Kritika Venugopal
Senior Associate
+65 68688017
Nihal Joseph
Nihal Joseph
Associate (India)
+44 20 7466 2212
Divyanshu Agrawal
Divyanshu Agrawal
Associate (India)
+44 20 7466 2593

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