The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given its approval for the revised Model Text for the Indian Bilateral Investment Treaty. The revised Indian model text for Bilateral Investment Treaty (BIT) will replace the existing Indian Model BIT.

The revised model BIT will be used for re-negotiation of existing BITs and negotiation of future BITs and investment chapters in Comprehensive Economic Cooperation Agreements (CECAs)/ Comprehensive Economic Partnership Agreements (CEPAs) / Free Trade Agreements (FTAs).

The new Indian Model BIT text will provide appropriate protection to foreign investors in India and Indian investors in the foreign country, in the light of relevant international precedents and practices, while maintaining a balance between the investor’s rights and the Government obligations.

A BIT increases the comfort level and boosts the confidence of investors by assuring a level playing field and non-discrimination in all matters while providing for an independent forum for dispute settlement by arbitration. In turn, BITs help project India as a preferred foreign direct investment (FDI) destination as well as protect outbound Indian FDI.

The essential features of the model BIT include an “enterprise” based definition of investment, non-discriminatory treatment through due process, national treatment, protections against expropriation, a refined Investor State Dispute Settlement (ISDS) provision requiring investors to exhaust local remedies before commencing international arbitration, and limiting the power of the tribunal to awarding monetary compensation alone.

The model excludes matters such as government procurement, taxation, subsidies, compulsory licenses and national security to preserve the regulatory authority for the Government.

Background

The first BIT was signed by India on March 14, 1994. Since then, till date, the Government of India has signed BITs with 83 countries. These BITs were largely negotiated on the basis of the Indian Model BIT of 1993.

Considerable socio-economic changes have taken place since 1993 when the Model text of BIT was first approved. The nature of government regulation concerning foreign investment has evolved. A wide variety of laws now regulate investments both at the central and the state levels. During the last few years, significant changes have occurred globally regarding BITs, in general, and investor-state dispute resolution mechanism in particular.