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The Enigma of Enforceability of Investment Treaty Arbitration Awards in India

Published online by Cambridge University Press:  16 April 2015

Prabhash Ranjan
Affiliation:
The West Bengal National University of Juridical Sciences
Deepak Raju
Affiliation:
The West Bengal National University of Juridical Sciences
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Abstract

This paper critically discusses the issue of enforceability of investment treaty arbitration (ITA) awards against India under the Indian domestic law on arbitration. In this regard, the paper discusses the relevant provisions of the Indian arbitration law and its interpretations by the Indian judiciary to understand their ramifications for the enforcement of ITA awards against India. The paper also discusses the proposed amendments to the Indian arbitration law and its ramifications on ITA. The issue of enforcement of ITA awards in India has become important due to India's gigantic international investment treaty programme where each treaty allows for investor-state treaty arbitration to settle disputes between investors and India. This issue has also become important in light of the growing observation that enforcement of foreign commercial arbitral awards in India is extremely difficult especially after the Venture Global engineering case. Thus, India is endeavouring to change the arbitration law so as to alter this perception. This paper argues that in spite of these proposed changes; enforcement of ITA awards may still face problems. Thus, the paper suggests that India should address the issue of enforceability of ITA awards given its gigantic investment treaty programme aimed at attracting foreign investment.

Type
Research Article
Copyright
Copyright © Faculty of Law, National University of Singapore 2011

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References

1 IIA, as a generic term, means Bilateral Investment Treaties (BITs), investment chapters in Free Trade Agreements (FTAs) and in Comprehensive Economic Cooperation Agreements (CECAs). In India, IIAs are called ‘Bilateral Investment Promotion Agreements’ (BIPAs). The term IIAs, in this paper, does not include Double Taxation Avoidance Agreements. The text of Indian IIAs, referred to in this paper, is taken from the eight volumes of Compendium of India's investment agreements published by the Ministry of Finance, Government of India (on file with the author) [Ministry of Finance Compendium].

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14 The Ministry of Law and Justice is a limb of the Central Government of India. It comprises of the Legislative Department and the Department of Legal Affairs. The Department of Legal Affairs is concerned with advising the various Ministries of the Central Government while the Legislative Department looks after the drafting of principal legislation for the Central Government. For more on the ministry see <http://lawmin.nic.in/>.

15 India, Ministry of Law, Amendments to the Arbitration & Conciliation Act, 1996 – A Consultation Paper (2010), online: <http://lawmin.nic.in/la/consultationpaper.pdf> [Ministry of Law (2010)]+[Ministry+of+Law+(2010)]>Google Scholar.

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24 This is up to 31 March 2010. In India the financial year is from 1 April to 31 March of the next year. All the references to different years given in the text are from 1 April to 31 March of the next year.

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27 India, Ministry of Finance, Introduction Material, online: <http://www.finmin.nic.in/the_ministry/dept_eco_affairs/dea.html>. The Ministry of Finance also takes the help of other ministries in this process such as the Ministry of External Affairs and Ministry of Commerce. The negotiations on CECAs containing chapters on investment are anchored by the Ministry of Commerce with Ministry of Finance playing a supporting role. Other departments of the Government of India are also involved in negotiating IIAs like the Legal and Treaties Division of the Ministry of External Affairs and the Ministry of Commerce.

28 For more on this see Banga, R., “Impact of Government Policies and Investment Agreements on FDI Inflows”, Indian Council for Research on International Economic Relations Working Paper No. 116 (New Delhi: ICRIER, 2003)Google Scholar; Ranjan, Prabhash, “Indian Investment Treaty Programme in Light of Global Experiences” (2010) 45 Economic & Political Weekly 68 [Ranjan (2010)]Google Scholar.

29 Ministry of Finance Compendium, supra note 1.

30 Ibid.

31 The India-Korea CECA (containing the chapter on investment) was signed in 2009 and became effective from 1 January 2010. However, India also has an IIA with Korea signed in 1996. This IIA has not been repealed and hence as of now, both the IIAs (that is the BIT and the investment chapter of the CECA) are in existence. However, this paper has left out the IndiaKorea IIA of 1996 and has included the investment chapter of CECA signed with Korea in 2009 as India-Korea IIA. India-Japan and India-Malaysia CECAs have also been left out because they are yet to be enforced.

32 India, Ministry of Commerce and Industry, India-Singapore CECA, online: <http://commerce.nic.in/trade/international_ta_framework_ceca.asp>.

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35 India, Department of Commerce, “Trade Agreements”, online: <http://commerce.nic.in/trade/international_ta.asp?id=2&trade=i>. India already has IIAs with Indonesia and Mauritius.

36 European Parliament, “EU-India Free Trade Agreement”, online: <http://www.europarl.europa.eu/oeil/FindByProcnum.do?lang=en&procnum=INI/2008/213>.

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41 Ranjan, P., “Medical Patents and Expropriation in International Investment Law – With Special Reference to India” (2008b) 5 Manchester J Int'l Econ L 72Google Scholar; Gibson, C., “A Look at the Compulsory License in Investment Arbitration: The Case of Indirect Expropriation” (2010) 25 Am U Int'l L Rev 358Google Scholar.

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44 Vienna Convention on the Law of Treaties, 27 January 1980, 1155 UNTS 331, 8 ILM 679.

45 Directive Principles of State Policy, enumerated in Chapter IV of the Constitution of India, are directives to the State intended to assist in the creation of a welfare state. However, these are not enforceable before any court of law. Nevertheless, their importance as the ‘conscience of the Constitution’ has been emphasised by the Indian Supreme Court on several occasions. See e.g. Pathumma and Others v. State Of Kerala And Others, AIR 1978 SC 771Google Scholar; Madhu Kishwar and Others v. State Of Bihar and Others, AIR 1996 SC 1864Google Scholar.

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47 Although in certain circumstances contractual breaches by the state could also amount to IIA treaty breaches. These breaches are called breaches of the Umbrella Clause of the IIA.

48 Schill, S.W., “International Investment Law and Comparative Public Law – An Introduction” in Schill, S.W., ed, International Investment Law and Comparative Public Law (Oxford: Oxford University Press, 2010) [Schill (2010)CrossRefGoogle Scholar]. Also see Salacuse (2010), supra note 3, 354-55.

49 Metalclad Corporation v. United Mexican States (2000), 5 ICSID 236, ARB(AB)/97/1 (ICSID)Google Scholar; Methanex Corporation v. United States of America (2005), 44 ILM 1345 (UNCITRAL), online: <http://www.naftaclaims.com/disputes_us_6.htm>>Google Scholar.

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51 MTD Equity Sdn. Bhd. and MTD Chile S^,A. v. Republic of Chile (2005), 44 ILM 91, ARB/01/7 (ICSID)Google Scholar.

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53 CMS Gas Transmission Co v. Argentina (2005), ARB/01/8 (ICSID)Google Scholar; CMS Gas Transmission Company v. Argentina (2007), ARB/01/8, (Annulment Proceedings) (ICSID)Google Scholar; Enron Corporation v. Argentina (2007), ARB/01/3 (ICSID)Google Scholar; Sempra Energy International v. Argentina (2007), ARB/02/16 (ICSID)Google Scholar; Sempra Energy International v. Argentina (2010), ARB/02/16, (Annulment Proceedings) (ICSID)Google Scholar; LG & E Energy Corporation v. Argentina (2006), ARB/02/1 (ICSID)Google Scholar; Continental Casualty Company v. Argentina (2008), ARB/03/9 (ICSID)Google Scholar.

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58 Schill (2010), supra note 48.

59 For more on the Argentine crisis see CMS v. Argentina, supra note 53; CMS v. Argentina, (Annulment Proceedings), supra note 53; Enron Corporation v. Argentina, supra note 53; Sempra Energy v. Argentina, supra note 53; Sempra Energy v. Argentina, (Annulment Proceedings), supra note 53; LG & E Energy v. Argentina, supra note 53; Continental Casualty v. Argentina, supra note 53.

60 Here it is important to note that an investment treaty arbitral tribunal only awards damages to the foreign investors and does not recommend the removal of the illegal measure. However, once a measure is found illegal, the host country will, more often than not, remove the measure because continuing with a measure found illegal may result in more arbitral challenges by other foreign investors.

61 For more on this see Rubins, N., “The Allocation of Costs and Attorney's Fees in InvestorState Arbitration” (2003) 18 ICSID Foreign Investment LJ 109 at 125Google Scholar; Salacuse (2010), supra note 3 at 355-56.

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64 Ministry of Finance Compendium, supra note 1.

65 Countries often adopt or develop model IIAs, which are policy statements providing the kind of provisions that a country wishes to have in an IIA. Countries often use their model IIAs as the basis of IIA negotiations. The Indian Model IIA is available at the website of the Ministry of Finance, India:

<http://finmin.nic.in/the_ministry/dept_eco_affairs/icsection/Indian%20Model%20Text%20BIPA.asp>.

66 See Article 9(3)(a), Indian Model IIA.

67 See Article 9(3)(c)(ii), Indian Model IIA.

68 These 10 IIAs are with the following countries: Germany, Spain, Qatar, Morocco, Argentina, Kuwait, Portugal, Bosnia and Herzegovina, Macedonia and Syria.

69 There are six IIAs that mention nothing on whether the ITA award shall be binding or not. These are with the following countries: Poland, Sri Lanka, Malaysia, Oman, Swiss Confederation and Tajikistan.

70 These IIAs are with the following countries: Italy, Spain, Qatar, Austria, Morocco, Sweden, Argentina, Finland, Portugal, Slovak Republic, Hellenic Republic, Macedonia, Saudi Arabia, Turkey, Syria and Yugoslavia.

71 See generally Jathar, R.V., Evolution of panchayati raj in India (Bombay: Institute of Economic Research, 1964)Google Scholar; Shukla, L.P., A History of Village panchayats in India (Nasik, 1970)Google Scholar; Singh, V.P., “Legal Perceptions and Usages in North Indian Village Disputes” (1976) 19 J Soc Research 14Google Scholar.

72 Hayden, R.M., “Excommunication as Everyday Event and Ultimate Sanction: The Nature of 7S3uspension from an Indian Caste” (1993) 42(2) J Asian Stud 291Google Scholar.

73 Recently, there have been instances of Khap Panchayats coming in conflict with the laws of the land on matters relating to inter-caste marriages, personal laws, etc. and have sought to impose their own sanctions, including death, on individuals for transgression of community norms. See Sangwan, Jagmati, “Khap panchayat: signs of desperation?”, The Hindu (7 May 2010) online: <http://beta.thehindu.com/opinion/lead/article424506.ece?homepage=true>Google Scholar.

74 Mohta, V.A. & Mohta, A. V., Arbitration, Conciliation and Mediation, 2d ed (Noida: Manupatra, 2008) at 15Google Scholar.

75 Bengal Regulation, 1772; Bengal Regulation 1781; Bengal Regulation 1787; Bengal Regulation, 1793.

76 §§ 14-17, Arbitration Act 1940, Act No. 10 of 1940.

77 AIR 1981 SC 2075.

78 Indian Arbitration Act, § 5: ‘Extent of judicial intervention.- Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part’.

79 See e.g. §§ 7, 8, etc., Indian Arbitration Act.

80 Guru Nanak Foundation, supra note 77.

81 This may be contrasted with the approach of the Indian courts with respect to settlement of international disputes between India and other States (which could include treaty-based disputes). In Maganbhai Ishwarbhai Patel, 1969 AIR 783, the court held that the power of the executive in settlement of such disputes was free of judicial intervention. However, any governmental action to give effect to such a settlement can be challenged before an Indian court.

82 §§ 8, 9, 11, 27, 34, 37, Indian Arbitration Act.

83 § 8, Indian Arbitration Act.

84 § 9, Indian Arbitration Act.

85 § 11, Indian Arbitration Act.

86 § 14, Indian Arbitration Act.

87 § 27, Indian Arbitration Act.

88 § 34(2)(b)(ii), Indian Arbitration Act.

89 § 36, Indian Arbitration Act.

90 § 37, Indian Arbitration Act.

91 § 2(2), Indian Arbitration Act.

92 Kitchnology N. V. and Another v. Unicor Gmbh Rahn and Another, 1999(1) Arb LR 452 (Delhi)Google Scholar; Dominant Offset Pvt. Ltd. v. Adamovske Strojitrny A.S., AIR 2000 Del 254Google Scholar; East Coast Shipping Limited v. M.J. Scrap Pvt. Ltd, 1997(1) HN 444Google Scholar; Jindal Durga Ltd v. Noy Vallesina Engineering SpA., 2002(2) Arb LR 323Google Scholar; Cultor Food Science Inc. v. Nicholas Piramal India Ltd., 2001(6) ALT 706Google Scholar. Also see Jain (2010) supra note 13 at 266-71 for a detailed discussion on cases decided by different Indian High Courts.

93 Bhatia International v. Bulk Trading S.A., AIR 2002 SC 1432.

94 Emphasis added.

95 Venture, supra note 12.

96 Wadhwa, Anirudh & Krishnan, Anirudh, eds, Justice R.S. Bachawat's Law of Arbitration & Conciliation, 5th ed (Nagpur: LexisNexis Butterworths & Wadhwa, 2010) at 2236-39Google Scholar.

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100 Renusagar v. General Electric, AIR 1994 SC 860Google Scholar; ONGC v. Saw Pipes, AIR 2003 SC 2629Google Scholar; Venture, supra note 12.

101 § 34(2)(b)(ii), Indian Arbitration Act.

102 Renusagar, supra note 100.

103 Ibid.

104 ONGC, supra note 100.

105 The Court used the examples of the Transfer of Property Act and the Indian Contract Act and stated that it would be against the basic spirit of justice if an award violating these Acts could not be assailed.

106 Venture, supra note 12.

107 Saipem v. Bangladesh, Award of 30 June 2009, online: <https://ita.law.uvic.ca/about.htm>.

108 Sattar (2010), supra note 13.

109 Supra note 6.

110 Supra note 100.

111 Renusagar, supra note 100 at para 61.

112 Supra note 12.

113 This is not to argue that each complaint of the foreign investor alleging that the host state's regulatory measure has violated the IIA will result in the tribunal coming to such a conclusion. There have been quite a few cases where the ‘regulatory’ measures of the host state have been held legal by arbitral tribunals. However, in this paper, we are looking at those situations where the arbitral tribunal comes to the conclusion that the ‘regulatory’ measure of the host state has violated the concerned IIA.

114 CMS v. Argentina, supra note 53.

115 See para 281 of CMS v. Argentina, supra note 53.

116 See para 272 of CMS v. Argentina, supra note 53.

117 For a discussion on this case and other cases involving Argentina see Bjorklund, A., “Economic Security Defences in International Investment Law” (2009) 1 YB Int'l Investment L & Pol'y 479Google Scholar; Kurtz, J., “Adjudging the Exceptional at International Law: Security, Public Order and Financial Crisis” (2010) 59 ICLQ 325CrossRefGoogle Scholar; Alvarez, J. & Khamsi, K., “The Argentine Crisis and Foreign Investors” (2009) 1 YB Int'l Investment L & Pol'y 379Google Scholar.

118 Franck, S., “Empirically Evaluating Claims about Investment Treaty Arbitration” (2007) 86 NCL Rev 1 [Franck (2007)]Google Scholar.

119 Ceskoslovenska Obchodni Co v. Argentine Rep (29 December 2004), ARB/97/4 (Final Award) (ICSID)Google Scholar.

120 CME Czech Republic BV v. Czech Republic (14 March 2003), (Final Award) (UNCITRAL)Google Scholar.

121 Franck (2007), supra note 118.

122 Int'l Thunderbird Gaming Corp v. United Mexican States (26 January 2006), (Arbitral Award) (NAFTA Chapter 11 Arb Trib) 68, 72Google Scholar.

123 For more on the point of compliance see Ryan, C.M., “Discerning the Compliance Calculus: Why States Comply with International Investment Law” (2009) 38 Ga J Int'l & Comp L 63Google Scholar.

124 For more on the Realist School see TDunne, . & Schmidt, B.C., “Realism” in Baylis, J. & Smith, S., eds, The Globalization of World Politics, 3d ed (Oxford: Oxford University Press, 2006) 161-83Google Scholar.

125 For more discussion on this see Hirsch, M., “Compliance with Investment Treaties: When are States more likely to Breach or Comply with Investment Treaties?” in Christina, B.et al, eds, International Investment Law for the 21st Century (Oxford: Oxford University Press, 2009) 865-76CrossRefGoogle Scholar.

126 Waibel, M., “BIT by BIT – The Silent Liberalization of the Capital Account” in Reinisch, A., ed, International Investment Law for the 21st Century – Essays in the Honour of Christoph Schreuer (New York: Oxford University Press, 2009) 497518 [Waibel (2009)]CrossRefGoogle Scholar; Salacuse (2010), supra note 3; Kolo, A. & Walde, T., “Capital Transfer Restrictions under Modern Investment Treaties” in Reinisch, A., ed, Standards of Investment Protection (Oxford: Oxford University Press, 2008) 205 [Kolo and Walde (2008)]CrossRefGoogle Scholar; UNCTAD, Transfer of Funds (New York and Geneva: UN, 2000) [UNCTAD (2000)]Google ScholarPubMed; Dolzer and Schreuer (2008), supra note 3; Gallagher, K. P., “Policy Space to Prevent and Mitigate Financial Crisis in Trade and Investment AgreementsG 24 Discussion Paper Series, No 58, (UNCTAD, 2010)Google Scholar; Turyn, A. & Aznar, F.P., “Drawing the Limits of Free Transfer Provisions” in Waibel, M.et al, eds, The Backlash against Investment Arbitration (The Hague: Kluwer, 2010) 5178 [Turyn and Aznar (2010)]Google Scholar; Muchlinski, P.T., “The Framework of Investment Protection – The Content of BITs” in Sauvant, K.P. & Sachs, L.E., eds, The Effect of Treaties on Foreign Direct Investment, Bilateral Investment Treaties, Double Taxation Treaties, and Investment Flows (Oxford: Oxford University Press, 2009) 37 at 5961 [Muchlinski (2009)]Google Scholar.

127 For more on this see Gururaj, B.N.et al, Commentaries on FEMA, 2d ed (Delhi: LexisNexis, 2009)Google Scholar.

128 See §§ 6(3)(a)-(j), Foreign Exchange Management Act, 1999, Act 42 of 1999 [FEMA]Google Scholar.

129 The issue of compatibility between MTPs in IIAs (pre-accession BITs) and other regulations (EU Treaty or the EC law) has also arisen in EU; see Commission of EU v. Republic of Austria, C- 205/06, available at <http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62006J0205:EN:HTML> (last visited on 2 October 2010); Commission of EU v. Kingdom of Spain, C-249/06, available at <http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62006J0249:EN:HTML> (last visited on 2 October 2010).

130 For more on transfer of funds provision in IIAs, see Waibel (2009), supra note 126 at 497-518; Salacuse (2010), supra note 3; Kolo and Walde (2008), supra note 126 at 205; UNCTAD (2000), supra note 126; Dolzer and Schreuer (2008), supra note 3 at 010; Turyn and Aznar (2010), supra note 126 at 51-78; Muchlinski (2009), supra note 126 at 59-61.

131 In this regard, it is important to note that the majority of Indian IIAs have a provision saying that foreign investments shall be governed by domestic laws. Such provisions make the obvious point that the day to day operations of foreign investments will be in accordance with domestic laws. In the above situation, can India rely on this provision to argue that its regulatory measure, which is consistent with FEMA, is IIA compatible notwithstanding the violation of the unqualified right to transfer funds? The answer to this question is no because such an interpretation will allow domestic law to be used to justify violation of international law rendering the IIA provisions inutile. In any case, a situation where the treaty obligations and national law appear to be in conflict is uncalled for and will give rise to all sorts of complexities, which India should have avoided by being more precise and definite in drafting the MTPs in its IIAs including the Model IIA.

132 Ministry of Law (2010), supra note 15.

133 Statement of Objects and Reasons, The Arbitration & Conciliation (Amendment) Bill, 2003Google Scholar; Ministry of Law (2010) supra note 15.

134 Bhatia, supra note 93.

135 It is pertinent to note that though the Amendment Bill as it currently stands does not add the word ‘only’ to section 2(2), there is a mention in the Consultation Paper, issued in this regard, of such an addition. If this addition were to take effect, Part I will cease to have application to arbitrations held outside India including investment arbitrations.

136 See the discussion in Section V.A.2 of this paper.