Government to draft model treaty on MNCs' mediation rush

The reworked treaty will stipulate that the foreign investor will not be able to challenge the legality of an unfavourable verdict from the Supreme Court.

NEW DELHI: A spate of international arbitration notices served by foreign companies has prompted the government to draft a new model treaty that will make it harder for foreign investors to approach international courts.


The reworked treaty will stipulate that the foreign investor will not be able to challenge the legality of an unfavourable verdict from the Supreme Court. Further, the investor would have to exhaust remedies under local laws before seeking international arbitration under bilateral investment protection agreements (BIPA).

"The new draft is almost ready. It should go to the Cabinet soon," said a senior government official privy to the deliberations.

The government also plans to issue detailed statements to clarify the intent behind the provisions of existing treaties, hoping to plug the obvious loopholes.

The Vienna Convention provides for such declaration of intent, the official said.

As many as 17 companies or individuals, including Germany's Deutsche Telekom, Vodafone International Hol-dings BV, Sistema, Children's Investment Fund and TCI Cyprus Holdings, have served notice on India under BIPA, challenging various court rulings and policy measures. Currently, Vodafone is insisting on international arbitration in its seven-year-old multi-billion-dollar tax dispute with India. Earlier, White Industries Australia had won a favourable award against India.

Some investors have challenged the legality of SC's February 2012 decision cancelling 122 telecom licences. These notices have been a source of adverse publicity for the government.

Experts say a change in the model text of BIPA was needed as the overall investment environment has undergone many changes since the existing text was prepared.

"Studies and empirical facts suggest that the existing investor-State dispute settlement mechanism globally has not been satisfactory. Therefore, it's not just India but other countries as well which are having a re-look at their investment agreements to safeguard interests," said Ram Upendra Das, senior fellow, Research and Information System for Developing Countries. Das said renegotiation of existing BIPAs should not be an issue. In 2011, 46 new investor-State dispute settlement cases were filed under international investment agreements, bringing the total number of known treaty-based cases to 450 by the end of 2011, according to a study by UNCTAD.