Investment Arbitration: Past, Present and Future

Introduction:
Investment arbitration is a process used to settle disagreements between international investors
and the governments hosting them. ISDS, or Investor-State Dispute Settlement, is another name
for it. The protection and assurance provided to the foreign investor in the event of a
disagreement is the only basis for a foreign investor to sue a host state. The foreign investor will
be able to consult with competent arbitrators who will settle the conflict and pay them. This
might even enable a foreign investor to avoid national courts that might be thought of as
prejudiced or lacking in any sense of independence. A foreign investor cannot begin any type of
Investment Arbitration against a host State unless the host State has consented to it.

Past
According to a study, there were primarily two uses for investment arbitration up until the mid-
to-late 1990s. On the one hand, it served as a neocolonial tool to advance the economic
objectives of wealthy nations. On the other hand, it served as a way to impose the rule of law in
non-democratic countries with a shaky history of law and order. But since the mid-to-late-1990s,
the primary purpose of investment arbitration has been to establish rules and determine the rights
of investors and host states, thereby making the global investment regime more predictable.
However, it appears to favour the "haves" over the "have-nots" in doing so, making the
international investment system more difficult for impoverished nations than for affluent ones.

India and the UK signed their first bilateral investment treaty (BIT) in 1994. India, however, has
never ratified the ICSID Convention. Although it appears that India's limited exposure to
investment disputes was a major factor in this decision, the Indian Council for Arbitration had
recommended against India joining ICSID in 2000. Two of the main causes, which were also
covered in this blog, were the belief that ICSID favoured industrialised nations and the absence
of a mechanism for local courts to review investment awards. Under the terms of the BIT
between Australia and India, White Industries Australia Limited filed legal action against India.
Six other foreign investors issued notices to the Indian government invoking arbitration under
various BITs about their interests in India a year later, after this. The Republic of India v. White
Industries Australia Limited case eventually presented as a landmark decision for India under
BIT. The termination of telecom licences resulted in a number of claims under several BITs in
the years that followed. The government was changed in 2014, and the new administration chose
to change the investment arbitration system. Work on a model BIT was the first stage, and it was
published in late 2015. (discussed here). Despite the general backlash, the model BIT
nonetheless permits using investment arbitration. But in 2017, the government took the most
extreme action to lessen the perception of India's vulnerability by cancelling the majority of
India's existing BITs (58 out of 84). In addition, the government eliminated the Foreign
Investment Promotion Board's FDI approval process (which has received both positive and
negative feedback) and is now allowing the concerned ministries to, if required, enable foreign
direct investment in India.

Present

Due to the rise in investment arbitration, there have been several changes in both international
laws and practices. Countries that did not previously participate in international ventures are now
likely candidates for foreign investment. With the passage of time and the rise in foreign
investors, investment arbitrations have taken on a significant role in public international law
globally. The recent changes in the international investment landscape have had a significant
impact on the Asia-Pacific area. Notably, China and Southeast Asia have emerged as key
providers of outbound foreign direct investment (FDI) as well as expanding FDI receivers.
Throughout parallel, over the past ten years, the number of foreign investment agreements has
increased in the Asia-Pacific area. Bilateral Investment Treaties ("BITs") that India has signed
with a variety of nations make arbitration possible in India. The State is required by a bilateral
investment treaty to guarantee certain rights and safeguards to foreign investors. These BITs
provide access to protection under numerous categories of international law for foreign
individual investors against various acts of omission or commission that the Indian Government
may be involved in. These agreements, to mention a few, cover fair and equitable treatment,
expropriation protection, national treatment, and most-favourable nation. Usually, the
contracting nations discuss the protections and rights. The effects of these types of proceedings
first became apparent in November 2011 when an arbitral panel issued the first-ever published
award to the Republic of India in an International Investment Arbitration. The enforcement issue
should not go unmentioned in light of the current difficulties facing Indian investment
arbitration. Naturally, India is exempt from the ICSID enforcement mechanism outlined in
Article 53(1) of the ICSID Convention. Although India ratified the New York Convention, it
issued a "commercial reservation," the Delhi High Court has ruled in two cases (Union of India
v. Vodafone Group PLC United Kingdom & Anor (2017) and Union of India v. Khaitan
Holdings (Mauritius) Ltd & Ors (2019)). Investment arbitrations, according to the High Court,
are not commercial in nature and cannot, therefore, be upheld under the New York Convention.

Future

Investment arbitration is a key part of international law and dispute resolution, and it is
forecasted to play a significant role in the future of the world economy. Investment arbitration is
typically predicted on investment treaties. Since the Indian government is dismissing BITs and
its BIT with Brazil excludes investment arbitration in total, it is likely that investment arbitration
will not be possible in this case. This makes the future of Indian investment arbitration look
uncertain. The Administration is also considering the concept of establishing specialised
tribunals to deal with investment complaints. It can be concluded that India has become more
protectionist and state-oriented as a result of its experience in investment arbitration as a
respondent state. India's protectionist attitude to investment arbitration may have negative
consequences since it sends the wrong message to potential investors. However, India's approach
is not set in stone. Perhaps and hopefully, India will eventually re-enter the phase of openness
while being a more proactive actor in shaping investment arbitration to balance investor interests
with states' right to regulate. India needs to take a long-term plan, not any short-term drastic
measures.

Investment arbitration is a growing field encompassing a variety of fields like space law and
cryptocurrency. One such case in particular is Deutsche Telekom v. India, PCA Case No.2014-
10. This arbitration agreement for investments recently included India. It was a space law case.
Laura Yvonne Zielske discussed space law in a webinar with the massive expansion of the
satellite business and the current development of space travel. The Space Foundation's space
records for the second quarter of 2021 show that the global space economy has grown to $447
billion, the number of satellites orbiting the Earth has increased over the past five years, and
space business activity is booming. It shows that it is starting. Therefore, as space activities
develop, more unrest and conflicts arise, where disagreements over investment and trade prevail.
As space activities and disturbances increase, the need for investment arbitration will continue to
grow. Surprisingly, the space law includes provisions for investment arbitration, and the courts
frequently recommend this option to the parties involved.

Conclusion

We can say that India has been a leading policy maker in the area of foreign investment,
especially in the past. India's landscape of bilateral treaties has greatly benefited the nation as it
attracts foreign investors due to its provisions such as maximum governance, and minimum
government. Although several authors believe that the Indian government should reconsider its
policy on joining the BIT, its policy on arbitration clauses remains unchanged. Many cases
against India have drawn the attention of both foreign and Indian investors to the possibilities of
investment arbitration in relation to India's policies in this regard. India has thoroughly benefited
from its Investment Arbitration Policies in recent years as its provisions allow investors to avoid
complex and lengthy legal disputes in India. Unlike most other countries with their provisions in
BITs, Free Trade Agreements etc. allow relief against India's gain, unlike most other countries.
Given the current situation, it seems that Investment Arbitration will become more prevalent in
India in the near future. While India's policies are highly attractive to foreign investors, the
number of investment arbitrations is also continuously increasing.