ABC Live Report: India lost key investment arbitration cases due to broad treaties and retrospective policies. This report explains why—and how the 2016 Model BIT is changing the game.
New Delhi (ABC Live): India’s early adoption of Bilateral Investment Treaties (BITs) paved the way for a surge in foreign direct investment (FDI). But it also left the country vulnerable to investor–state dispute settlement (ISDS) claims.
With 29 known cases filed against it and more than USD 3.5 billion awarded or settled, India’s investment arbitration experience is one of the most instructive in the Global South. It tells a story of misguided optimism, legal vulnerability, and finally, sovereignty-driven reform.
?? Landmark Investment Arbitration Cases Against India
?? Cairn Energy v. India (2020)
Cairn Energy sued India under the India–UK BIT after the Indian government slapped a retrospective capital gains tax on a 2006 restructuring.
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Claim: USD 1.2 billion
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Tribunal Ruling: India’s tax demand breached Fair and Equitable Treatment (FET) and constituted an indirect expropriation.
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Outcome: Cairn was awarded USD 1.2 billion plus interest (~USD 1.7 billion total). The case became a global symbol of India’s unpredictable tax policy.
? Vodafone v. India (2020)
Vodafone initiated arbitration under the India–Netherlands BIT, challenging a retrospective tax on its 2007 acquisition of Hutchison’s telecom assets.
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Claim: Over USD 4 billion in tax liability
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Tribunal Ruling: India violated the investor’s legitimate expectations, and the retrospective legislation was arbitrary.
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Outcome: The tax demand was nullified. Though no damages were awarded, the reputational cost was immense.
?? Devas Multimedia v. India (2016–2020)
In Devas v. India, foreign investors filed claims after India’s state-owned Antrix Corporation cancelled a satellite spectrum agreement, citing national security.
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Treaty Invoked: India–Mauritius BIT
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Tribunal Ruling: Cancellation was arbitrary and without due process, breaching FET and resulting in indirect expropriation.
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Outcome: Over USD 1.2 billion awarded to investors, including Deutsche Telekom.
? Why India Lost Most Investment Arbitration Cases
1. ? Broad and Poorly Drafted BITs
India’s first-generation BITs—signed in the 1990s and early 2000s—provided:
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Open-ended FET clauses with no clear limitations,
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MFN clauses, which allowed investors to import favourable provisions from other treaties,
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No public policy carve-outs for taxation, environment, or national security.
In White Industries v. India, the investor used the MFN clause to sidestep India’s legal system and apply a faster dispute clause from the India–Kuwait BIT.
2. ?? Fair and Equitable Treatment (FET) Violations
Tribunals interpreted FET expansively, protecting:
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Legitimate expectations based on state conduct,
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Access to timely and effective legal remedies,
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Protection from arbitrary, inconsistent, or discriminatory actions.
India’s tax law amendments, contract cancellations, and procedural delays were seen as FET violations.
In Cairn and Vodafone, tribunals emphasized how retroactive laws defied investor confidence and undermined legal certainty.
3. ?? Denial of Justice and Judicial Delays
India’s legal system, notorious for backlog and delay, contributed directly to losses.
In White Industries, India was faulted for taking over nine years to enforce an international arbitration award, leading to a finding of denial of justice under FET.
Such delays damaged India’s credibility in dispute forums and gave investors strong legal ground.
4. ? Retrospective Policy and Regulatory Flip-Flops
India’s 2012 decision to amend tax laws retrospectively had global implications. It led to high-profile ISDS claims by Vodafone and Cairn.
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Retrospective taxation violated legitimate expectations,
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Tribunals viewed this as abusive and non-transparent conduct.
These cases severely damaged India’s image as an investor-friendly destination.
5. ? Lack of Carve-Outs for Sovereign Functions
Early BITs lacked clauses protecting India’s right to regulate in the public interest—be it taxation, health, environment, or security.
In Devas, India argued national security. But without a treaty-based carve-out, the tribunal prioritized investor protection over state discretion.
6. ?? Weak Institutional Strategy and Legal Representation
In early disputes:
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Legal defences were scattered across ministries,
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No central dispute management system existed,
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Procedural errors and delays weakened India’s position.
Only post-2015 did India begin building a coordinated treaty litigation unit and hiring global arbitration specialists.
? Reforming the Rules: India’s 2016 Model BIT
The Model Bilateral Investment Treaty (2016) marked a tectonic shift in India’s legal position. It now:
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Requires exhaustion of domestic remedies for five years,
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Limits FET to violations of customary international law,
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Excludes MFN clauses and investor-state umbrella clauses,
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Preserves India’s right to regulate for public welfare, health, and environment.
India has used this model to terminate or renegotiate 58+ BITs and signed new ones with:
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Brazil (2020) – no ISDS, state-led conciliation only,
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UAE (2022) – includes limited ISDS under strict conditions,
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Kyrgyzstan (2023) – uses a hybrid model with safeguards.
? Global Comparison: India vs. the West
| Feature | India | United States | European Union | Brazil |
|---|---|---|---|---|
| FET Standard | Narrow (denial of justice only) | Moderate (case-specific) | Broad but codified | None |
| MFN Clause | ? Excluded | ?? Included (limited) | ?? Included (contextual) | ? Excluded |
| ISDS Access | Delayed (post 5-year litigation) | Direct | Direct or through MIC | ? No ISDS |
| Right to Regulate | ?? Strongly protected | ? Context-based | ?? Explicit | ?? Central |
| Appeals Process | ? None | ? None | ?? Multilateral Investment Court (proposed) | ? Not applicable |
India’s current approach aligns more with Brazil’s CFIA model—emphasising state-led resolution—than with the ISDS-heavy systems of the US or EU.
? What’s Next: India Leads in Reform
India is now a proactive participant in global treaty reform. It supports:
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The creation of a Multilateral Investment Court (MIC) under UNCITRAL Working Group III,
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The Singapore Convention on Mediation, promoting investor–state mediation,
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Development of domestic arbitration hubs like the Mumbai Centre for International Arbitration (MCIA) and Delhi International Arbitration Centre (DIAC).
India also advises fellow developing countries on how to reform legacy treaties and defend regulatory autonomy.
? Conclusion: From Arbitral Losses to Legal Leadership
The Indian investment arbitration experience began with costly defeats, driven by legal ambiguity, reactive policymaking, and institutional gaps. But it has matured into a globally respected reform model.
India now offers a blueprint for emerging economies: protect investors, but not at the cost of sovereign control and public interest.
? References & Further Reading
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