- 15-Oct-2025
- public international law
India, historically a strong proponent of foreign investment, has been a party to several Bilateral Investment Treaties (BITs) with countries worldwide. These treaties serve as crucial instruments for protecting foreign investments by establishing a framework that provides legal guarantees, dispute resolution mechanisms, and security to investors. BITs typically allow foreign investors to seek compensation or other remedies in cases of expropriation, unfair treatment, or discriminatory practices by the host state.
However, India's approach to BITs has undergone significant changes in recent years, particularly due to concerns over the excessive burden of international arbitration and the impact on sovereignty. As a result, India has renegotiated several of its BITs and, in some cases, terminated agreements with countries.
India signed its first BIT in 1994 with Germany. Initially, India entered into numerous BITs with countries to attract foreign direct investment (FDI) and provide protections to foreign investors.
In recent years, India has re-evaluated its BIT strategy. Concerns arose about investor-state dispute settlement (ISDS) provisions, where foreign investors could challenge government regulations, including those on health, environment, and public welfare, which led to a perceived erosion of sovereign rights.
In response to criticisms, India introduced its own Model BIT in 2016, which aims to strike a balance between protecting investors and safeguarding the state's sovereign regulatory powers. It emphasizes state sovereignty and limits investor-state dispute settlement (ISDS) by requiring exhaustion of local remedies before arbitration can be initiated.
Most BITs signed by India provide protection against expropriation, guaranteeing that investments will not be taken without fair compensation.
Foreign investors are often guaranteed fair and equitable treatment, ensuring that they are not subject to discriminatory or arbitrary actions by the host state.
These provisions ensure that foreign investors are treated on an equal footing with domestic investors and are not discriminated against in favor of other foreign investors.
BITs typically provide for investor-state dispute settlement (ISDS) through arbitration mechanisms, like ICSID (International Centre for Settlement of Investment Disputes) or UNCITRAL, where foreign investors can directly sue the state if they believe their rights under the BIT have been violated.
India has terminated BITs with several countries over time, particularly after concerns that the ISDS mechanism could allow foreign investors to bypass domestic legal systems and challenge domestic policies. Some of the countries with which India has terminated BITs include Netherlands and Belgium-Luxembourg.
India has also renegotiated many BITs to reflect its Model BIT (2016), which aims to restrict or modify certain provisions, especially those that could limit India’s ability to make policy decisions in areas like environmental regulations, public health, and taxation.
The renegotiation or termination of BITs has sparked concerns among foreign investors. While India aims to protect its sovereignty and regulatory rights, the uncertainty caused by these actions might discourage new foreign direct investments.
Some foreign investors have raised concerns about the inconsistent enforcement of investment protections following India's withdrawal from certain BITs. However, the introduction of India's Model BIT (2016) offers a more balanced framework that is likely to reassure investors while safeguarding India’s sovereign interests.
As per India's Model BIT (2016), the state now encourages investors to resolve disputes through local courts or alternative dispute resolution (ADR) mechanisms before resorting to international arbitration. The exhaustion of local remedies requirement is a significant change that limits the investor's ability to initiate arbitration under the ISDS mechanism.
For instance, India has been involved in several investor-state disputes under BITs. A notable case is White Industries v. India, where the Australian company White Industries sued India for failing to enforce an arbitral award under the Australia-India BIT. The case highlighted the challenges in the interpretation and enforcement of BIT provisions.
BITs provide legal protection to foreign investors against arbitrary government actions, ensuring a fair environment for business.
A well-structured BIT system can boost confidence among international investors, leading to an increase in foreign direct investment (FDI).
Critics argue that BITs and the ISDS mechanism undermine India's sovereign rights by allowing foreign investors to challenge domestic laws, especially those related to environmental protection, public health, and taxation.
The detailed protections for investors in BITs may limit India's ability to regulate and adapt its policies in response to changing economic and social conditions.
An Indian company is involved in an international joint venture with a foreign investor. The investor's country has signed a BIT with India, which guarantees protection against expropriation and ensures fair treatment. However, the Indian government introduces new environmental regulations that significantly affect the business. The foreign investor files a claim under the BIT, alleging that the regulatory changes amount to indirect expropriation of their investment.
If the BIT includes ISDS provisions, the investor may initiate arbitration proceedings through ICSID or UNCITRAL.
If the case proceeds, the tribunal would assess whether the Indian regulations breach the BIT’s terms, particularly regarding fair and equitable treatment and expropriation.
Answer By Law4u Team
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