- 29-Jul-2025
- Elder & Estate Planning law
India’s new Model Bilateral Investment Treaty (BIT) is a part of the country’s broader efforts to attract foreign direct investment (FDI) while ensuring that the government retains sufficient regulatory flexibility to pursue public policy goals, such as environmental protection, public health, and social welfare. The new Model BIT aims to balance the interests of foreign investors with India’s sovereign right to regulate in the public interest. This model was introduced in 2016, marking a significant shift from the previous BITs that were more investor-friendly and offered expansive dispute settlement options, which many critics argued undermined India's ability to make sovereign decisions.
India introduced its new Model BIT after extensive consultation and criticism of the older BITs it had entered into, especially those with Developed Countries. These earlier agreements were seen as too protective of foreign investors and overly restrictive on India’s ability to regulate in areas like environmental protection, public health, and taxation. The new Model BIT reflects India’s sustainable development goals and its desire to protect both foreign investors and the public interest.
One of the major aspects of India’s new Model BIT is the emphasis on the host state’s right to regulate. This right allows India to take regulatory measures aimed at protecting public health, the environment, and other societal goals without the fear of being sued by foreign investors for violations of treaty obligations. This provision explicitly ensures that the treaty does not undermine India’s regulatory sovereignty.
The new Model BIT introduces several restrictions on Investor-State Dispute Settlement (ISDS) mechanisms. Unlike previous BITs, where investors could directly sue the host state in international arbitration, the new Model BIT establishes more stringent criteria for allowing ISDS claims, including exclusions for cases involving public policy matters such as taxation and social regulations.
The new Model BIT seeks to prevent frivolous and abusive claims by investors by introducing strict procedural safeguards. These include the requirement for investors to exhaust domestic remedies before initiating ISDS, and the possibility for the host state to request a counterclaim against the investor for violations of domestic laws.
The new Model BIT retains the Fair and Equitable Treatment standard but with a more restrictive interpretation. The provision is designed to ensure that investors are treated fairly and equitably, but it also allows the host state to take regulatory actions without facing claims of FET violations if those actions are legitimate, proportionate, and taken in good faith.
The new Model BIT defines expropriation more narrowly than in earlier versions, ensuring that states are not unjustly accused of expropriating foreign investments. The Model BIT requires that expropriation should only occur for public purposes, and the compensation must be prompt, adequate, and effective, but also leaves room for regulatory actions to be excluded from expropriation claims.
A distinctive feature of the new Model BIT is its alignment with India’s sustainable development goals (SDGs). Provisions within the BIT encourage states to consider the environmental and social impacts of foreign investments, ensuring that investments do not conflict with the host country’s efforts to promote social justice, sustainability, and economic development.
The Model BIT emphasizes transparency in the dispute settlement process, requiring public access to hearings and documents. This is a shift from previous BITs, where the arbitration process was often criticized for its lack of transparency.
While India’s new Model BIT is designed to protect the country’s sovereign rights, it also provides significant protections for foreign investors:
In line with India’s desire to increase transparency, the new Model BIT encourages multilateral dispute settlement mechanisms over ad-hoc arbitration, promoting the establishment of international institutions for investment arbitration.
In cases where a dispute involves issues of national public interest, the host country is allowed to invoke a public interest exception to avoid liability under the BIT. This provision empowers states to prioritize regulatory actions that safeguard public health or the environment, even if they affect foreign investments.
Previous BITs placed a heavier emphasis on investor protection and access to ISDS, often limiting the host country’s ability to regulate in the public interest. The new Model BIT seeks to strike a balance by explicitly safeguarding the right of India to regulate for public welfare without incurring liability for doing so.
Earlier BITs allowed broad access to ISDS, which led to some controversial cases where foreign investors sued India over regulatory changes or policy decisions. The new Model BIT limits ISDS by introducing safeguards that prevent frivolous or politically motivated claims.
Unlike older treaties, the new Model BIT prioritizes sustainable development, ensuring that foreign investments align with national and global sustainability goals, particularly in sectors such as energy, environment, and public health.
Previous BITs had broad expropriation clauses, which allowed foreign investors to challenge state measures as expropriation. The new Model BIT narrows this definition, allowing countries to regulate without the fear of being accused of expropriation as long as such actions are justified and proportionate.
Foreign investors should carefully review the provisions of the India Model BIT before making investments, as the treaty allows India significant regulatory flexibility in areas such as taxation, environmental regulations, and public health.
Investors wishing to challenge state measures under the BIT should ensure they understand the revised ISDS process, especially the new procedural safeguards. These include requirements for domestic dispute resolution and limitations on frivolous claims.
Investors should consider the sustainability aspect of their investments and how they align with India’s long-term goals, including environmental standards and social development initiatives.
Suppose a Japanese renewable energy company invests in building wind turbines in India. After a few years, the Indian government introduces new environmental regulations requiring all wind turbines to comply with stricter standards for wildlife conservation.
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