Protect investments and arbitration; else the economic pain will worsen
RN Bhaskar — 23 January 2020
The recent reckless remarks against Amazon’s Jeff Bezos’s investment announcements have upset the global financial community. The government’s subsequent claim that the remarks were taken out of context too has not assuaged frayed tempers.
Investor groups point to the mounting evidence that India has not protected global investments — despite rulings by international arbitration tribunals (http://www.asiaconverge.com/2016/08/arbitration-awards-india-shaken/)
Matters came to a head in December 2011. That was when the government’s constant attempts to block arbitral awards led the Supreme Court to form a Constitution Bench to examine this issue (http://www.asiaconverge.com/wp-content/uploads/2016/08/arbitration-2011-12-16_SC-notice.pdf).
In September 2012, the Constitution Bench ruled (http://www.asiaconverge.com/wp-content/uploads/2016/08/arbitration-2012-09-06_SC-5-member-bench-bharat.pdf) that arbitral awards given by arbitration tribunals from seats outside India could not be reopened by Indian Courts. That hurt the government, because it remains the biggest litigant in India (http://www.asiaconverge.com/2019/10/good-governance-must-begin-with-the-government/).
Meanwhile, in 2014, the government decided to revise its Bilateral Investment Treaty (BIT), and introduce a model BIT which forsakes the right to international arbitration, till all existing legal avenues in India are exhausted. Such a condition was absurd. Of the 56 BITs cancelled, only two countries – Cambodia and Belarus – agreed to sign such a treaty (India has hardly any business with these two countries). Even a couple of modified BITs did not lend confidence to investors. Currently, only 14 BITs are still in force. Some of them – like those with Japan and Korea are bilateral agreements which have not yet been made public. Nishith Desai Associates, a law firm points to the constantly changing scenario in investment laws (http://www.nishithdesai.com/information/news-storage/news-details/newsid/5854/html/1.html).
As an ruling party document itself points out (http://www.asiaconverge.com/2019/05/effective-dispute-resolution-needed-for-increase-in-fd/), “Today, India stands as a Respondent in more than fifteen cases involving investment treaties” – the highest number of cases against a host State till date.
Six of the most vexatious ones are listed in the chart below. They include Deutsche Telekom vs. India (damages unknown); Antrix Corporation Ltd. vs Devas Multimedia Pvt. Ltd (damages: $672 million); Nissan Motor Co. Ltd. vs. India (damages $770 million); India vs. Vodafone Plc. and others(damages unknown); India vs. Khaitan Holdings Mauritius Limited (damages unknown); and Korea Western Power Co. vs. India (damages estimated at $400 million).
Most chambers of commerce believe that unless India can treat foreign investments with respect, and offer acceptable ways to protect such investors, future equity flows into India will slow down (they already have).
That is where the statements against Bezos were most unwise. Especially at a time when India desperately needs foreign investments
Will India become investment friendly? That still remains a big question.
Six cases that could help decide if India is investment friendly
Deutsche Telekom vs. India
damages unknown as yet.
In 2007, Deutsche Telekom indirectly purchased 19.62% share in Devas Multimedia through a Singaporean subsidiary. In 2008, Devas Multimedia entered into a contract with Antrix, the commercial arm of the government-owned Indian Space Research Organisation, for leasing of transponders in the S-band spectrum on Indian satellites to provide broadband services to rural areas in India.
Antrix Corporation Ltd. vs Devas Multimedia Pvt. Ltd
damages: $672 million
This is linked to the Deutsche Telecom case referred to above. Since Dewas was directly involved — as part of the contract it had agreed to pay to Antrix a total of US$ 300 million over 12 years — it took Antrix and the Government to Geneva for arbitration, when its contact was cancelled. The arbitration tribunal awarded Dewas $672 million.
India vs. Vodafone Plc. and others
On April 17, 2014, Vodafone International Holdings BV (VIHBV) – a Dutch subsidiary of Vodafone Group Plc.(UK) – initiated arbitration against the Republic of India under the India-Netherlands BIT and BIPA (Bilaternal Investment Protection Act). It challenged retrospective income tax amendments which had brought VIHBV under the tax-liability net for acquisition of stake in an Indian company. The retrospective amendment was introduced by the Indian Parliament after the Supreme Court of India quashed the tax-demand made by Government of India against VIHBV.
Nissan Motor Co. Ltd. vs. India
damages claimed $770 million
Nissan Motor acquired 70% of Renault Nissan Automotive India Private Limited, in Chennai. In 2008, Nissan signed an agreement with Tamil Nadu government for building a car plant. Nissan was promised VAT and CST incentives which remained unpaid by the state.
India vs. Khaitan Holdings Mauritius Limited
Khaitan Holdings Mauritius Limited had investments into Loop Telecom and Trading Limited in India which had a telecom licence from the government for 21 Unified Access Services (“UAS / 2G License”). In 2012, the 2G scam compelled by the Supreme Court to cancel its licence Loop approached TDSAT for refund of license fees. Its request was dismissed. Kaif Investments Limited (“Kaif Investments”) and Capital Global Limited (“CGL”) that held substantial interests in Loop issued a notice to India under the the BIT (bilateral investment treaty. Thereafter, Kaif Investments merged with Khaitan Holdings.
Korea Western Power Co. vs. India
Damages estimated at 400 million
.In 2012, Korean Western Power Co. (KOWEPO), a South Korean state-owned utility, decided to invest in India in the natural gas sector based on investments invited by India. KOWEPO acquired approximately 40% stake in Pioneer Gas Power Plant Ltd. (PGPL) which operated a gas-based power project in the State of Maharashtra. India made a commitment to supply fuel for the project.
|Source: Media reports and published documents