Last week, Chief Justice of India (CJI) DY Chandrachud, speaking at the Conference on International Arbitration and the Rule of Law organised by the Supreme Court of India, rightly emphasised promoting the rule of law to create a conducive environment for economic growth.

Reportedly, the CJI also said that India was no longer fearful of investor-state arbitration (ISA) - a system whereby foreign investors bring claims against host states for alleged investment treaty breaches - because New Delhi now possesses the professionalisation needed to deal with investor-state disputes.

While it is true that India’s capacity to deal with ISA disputes (also known as investor-state dispute settlement or ISDS) has strengthened, the proclamation of the CJI needs to be taken with a few grains of salt – maybe three in this case.

First, whether India fears ISA cannot only be seen through the lens of professionalisation of arbitration. It is true that in the past few years, the Indian government has adopted several measures geared towards making India a hub of international arbitration. These include amendments to the Arbitration and Conciliation Act 1996 (A&C Act) to reduce delays in proceedings, judicial intervention, and the cost of arbitration, as well as establishing international arbitration centres in Delhi and Mumbai. However, when it comes to ISA, there is no clarity on whether the A&C Act applies to such arbitration. The Delhi High Court in Union of India v Vodafone held that the A&C Act does not apply to ISA, thus leaving it to the inherent jurisdiction of the civil courts. This has created a potential legal void regarding the Indian law regulating ISA. Thus, it is unlikely that any foreign investor would choose India as the seat of arbitration for ISA disputes, throwing a spanner in the works of India’s ambition to become a global arbitration hub.    

Second, India’s investment treaty practice continues to show that India, even if not fearful, is unsure of ISA. Due to a slew of ISA cases, India unilaterally terminated most of its bilateral investment treaties (BITs), thus attempting to put an end to ISA with many countries. It adopted a new model BIT in 2015, which contains heavily qualified provisions on ISA, which would make it practically impossible for any foreign investor to use treaty arbitration against the host state effectively. In the last decade or so, India has managed to sign a BIT, based on its 2015 model, with barely a handful of countries like Belarus, Kyrgyzstan and the United Arab Emirates. With Brazil, India signed an investment treaty without ISA. India’s investment treaty negotiations with prominent global players, who are large investors in India, like the United Kingdom (UK) and the European Union (EU), are reportedly stuck largely due to the differences on the issue of ISA. The UK, EU and several other prominent capital exporters to India have deep reservations about India’s stated ISA position enshrined in the 2015 model. Another critical unnoticed fact is that unlike the free trade agreements (FTAs) of the 2000s, India’s recent FTAs with Mauritius, UAE, Australia, and European Free Trade Association (EFTA) countries do not contain provisions on ISA.  

These developments coincide with the period post-2015, in which India has been revamping its arbitration landscape to become an international arbitration hub. So, to say that India’s fear of ISA is connected to the lack of professionalisation in arbitration, is to cast a shadow on the real reason behind such fear.

Third, while India is right in flagging the problems with the ISA regime, it appears recalcitrant in taking part in its reform. Countries have been negotiating at the United Nations Commission on International Trade Law (UNCITRAL) since 2017 how to fix the problems in ISA. Interestingly, as evident from the UNCITRAL website, India remains conspicuous by its absence in proposing its vision for ISA reforms. India’s practice is at variance with other developing countries like Brazil, South Africa, China, Argentina, etc who have intervened on various dimensions of ISA reform. This position is perplexing, given New Delhi’s standing in the global South and its vocal interventions at other multilateral forums such as the World Trade Organization.

India’s approach to ISA can be theorised as a movement towards de-judicialisation of ISA - removal of disputes between foreign investors and states from the purview of international arbitration and bringing them under the horizon of domestic courts.

Therefore, there is a mismatch in the narrative that is being woven at home, and the one that the hard facts point to. One possible explanation for this mismatch is that India’s vision of becoming a hub for international arbitration is restricted to pure commercial arbitration and does not include ISA. If that is the case, it needs to be spelt out to avoid giving mixed signals to foreign investors.  

Prof Prabhash Ranjan is a professor at the Jindal Global Law School.

Pushkar Anand is pursuing PhD at Macquarie University, Australia.

Views are personal.