India’s Model BIT — a decade later, amid changes

GS-II – International Relations | Bilateral Investment Treaties | International Investment Regime

Why in News?

• India is in the process of revising its Model Bilateral Investment Treaty (BIT) close to ten years since the revised model was notified after approval in 2015.
• The Union Budget 2025-26 announced that the model would be revised and made more investor-friendly.
• Background: India’s treaty practice and the international investment regime itself are evolving.
• Key Question: The relevant issue is not whether India should provide investors with more or less protection, but what the past decade has taught us and how that should determine the new model.

Model BIT — 2015: A Cautious Approach

• Historical Context: India came up with its 2015 Model BIT in a particular historical context.
• White Industries Australia Limited v Republic of India (2011): The award and concerns about investor-state arbitration prompted a risk-averse approach.
• Key Features:
  • Narrower definition of investment.
  • Carefully framed substantive protections.
  • Regulatory exceptions.
  • Obligation to exhaust all judicial and administrative remedies for a minimum of five years before initiating treaty arbitration.

Evolution in India’s Treaty Practice

• New-Generation Investment Agreements: India signed investment agreements with countries such as UAE, Uzbekistan and Israel.
• India-UAE BIT: Allows a three-year window to exhaust local remedies compared to five years under the 2015 Model.
• India-Israel BIA: Effective from July 2026 and provides for a three-year period to pursue local remedies.
• More Flexibility: These agreements represent relatively greater flexibility in India’s treaty practice since 2015.

Role of the Model BIT

• Starting Point: A Model BIT is usually more of a starting point for negotiations than a uniform template.
• Signal: It signals to potential treaty partners the protections and obligations that a state wishes.
• Flexibility: Each treaty can be tailored to the situation and priorities of the parties.
• Future Negotiations: The new model must do better than simply creating a road map for India’s treaty negotiations of the future — it must allow room for contingencies.
• Makane Moïse Mbengue: His work demonstrates that an emerging country can have a position which is not exclusively that of a rule-taker under international investment law and can instead play the role of a rule-shaper through its treaty practice.
• India: India’s revision of its Model BIT offers an opportunity in the same light.

Changing International Investment Regime

• UNCTAD: Indicates signs of a shift towards:
  • Investment facilitation.
  • Cooperation.
  • Sustainable development.
  • More carefully defined investor protections.
  • Less reliance on traditional Investor-State Dispute Settlement (ISDS).
• UNCITRAL: Examining reforms to ISDS, including:
  • Permanent tribunal.
  • Appellate mechanism.
  • Damages and compensation.
  • Dispute prevention.
• Requirement: India should now revisit its Model BIT to respond to the changes in the investment regime, instead of simply taking up the 2015 Model again.

What Must the New Model Take Into Account?

1. Most Favoured Nation (MFN) Provision

• Current Practice: The MFN provision is typically not present in most of the investment treaties concluded by India.
• Impact: The investor has less opportunity to argue for more protection under other treaties.
• Well-Defined MFN Provision: If the new model includes an MFN provision, it needs to be well defined.
• Emilio Agustín Maffezini vs Kingdom of Spain: An MFN clause was used to avoid an 18-month local-court requirement by relying on more favourable dispute-settlement provisions in another treaty.
• Plama Consortium Limited vs Republic of Bulgaria: Refused to import such a provision without clear provisions in a treaty.
• Recent Treaty Drafting: Provides examples of excluding dispute-settlement procedures from the MFN scope.
• Requirement: MFN should therefore be clearly defined, especially concerning dispute settlement.

2. Investor Obligations

• India-Uzbekistan BIT: A state is specifically allowed to bring counterclaims against an investor or investment.
• New Model: Can learn from this practice and provide for:
  • Investor obligations.
  • Conditions in which counterclaims may be filed.

3. Dispute Settlement

• 2015 Model: Required exhaustion of all judicial and administrative remedies for five years.
• Recent Practice: India-UAE and India-Israel investment agreements provide for a three-year period for pursuing local remedies.
• Greater Flexibility: This indicates more flexibility in India’s approach.
• Dispute Prevention: The Model BIT may expand the scope for effective pre-arbitration consultation and dispute-prevention procedures, as discussed at UNCITRAL Working Group III.

4. Need for Precision and Clarity

• Expropriation and FET: Precision of expression with respect to expropriation and Fair and Equitable Treatment (FET) can help avoid ambiguity in interpretation.
• Right to Regulate: Such clarity must protect the state’s right to regulate in favour of the public good.
• Sustainable Development: Sustainable development and responsible investment should not just be policy statements.
• Investor Obligations: Where obligations are intended to be imposed on investors, they should be formulated in unequivocal legal terms.

Way Forward

• More Workable Model: Build a clearer and simpler proposition that fits where India is today.
• Flexibility: Individual treaties can be adjusted to fit specific needs.
• MFN: Specify precisely that the MFN has a limited scope, especially concerning dispute settlement.
• Investor Duties: Clearly spell out the duties of investors and when counterclaims can be made.
• Dispute Settlement: Revisit the five-year local-remedies requirement in view of India’s subsequent practice under BITs.
• Dispute Prevention: Include more effective consultation and dispute-prevention procedures prior to arbitration.
• Specificity: Be more specific regarding expropriation and Fair and Equitable Treatment (FET).
• Right to Regulate: Protect the right of the state to regulate for the public good.
• Sustainable Development: Codify sustainable development and responsible investment obligations in clear and legal terms.
• Balanced Approach: The reforms should not result in an overall improvement either for investors or states with respect to the previous model.

Conclusion

• Takeaways from the Last Decade: The amended Model BIT needs to embody the learnings from India’s treaty practice over the last 10 years.
• Provide Framework: It needs to lay out a coherent framework for future negotiations while also allowing flexibility within specific treaties.
• Stage of Affairs: Having reportedly completed a draft for Cabinet approval, the final text will indicate whether it accurately captures India’s treaty history while laying out a path for future negotiations.

UPSC Mains Practice Question

Q. The revision of India’s Model Bilateral Investment Treaty comes at a paradigm shift in treaty practice and the international investment regime. Evaluate the factors that must help shape India’s updated Model BIT.