US wants MNCs to have right to sue India abroad

There is growing pressure on the Indian government to incorporate a provision in an investment agreement with the US, which if invoked will have far-reaching implications in that it will allow multinational corporations to bypass the Supreme Court and sue the government for millions of dollars in foreign tribunals.


The 'investor-state dispute settlement', a key element of the bilateral investment pact, will arm foreign investors operating in India with a slew of rights. Biswajit Dhar, director general of the Research and Information System for Developing Countries told TOI: "We understand that the US is insisting that we sign (the clause), which is a problem area as an investor can drag the state to an international arbitration panel if its investment and/or profits are at risk on account of some domestic regulation."

Most bilateral investment treaties include a broad definition of investment, covering just every aspect from financial transactions to intellectual property to any form of asset, Dhar added.

India and the US have been engaged in giving shape to the Bilateral Investment Promotion and Protection Agreement (BIPPA) and the Prime Minister's visit to US could serve to hasten its finalization. New Delhi has taken the stand that the Indian judiciary should have the last word on commercial disputes, but the US has so far found this unacceptable, said sources familiar with the situation. In fact, the Indian government is said to be keen to review similar settlement clauses in certain other investment treaties that already exist with other countries and trading blocs. This comes at a time when there is growing opposition to the dispute settlement provision in countries like Brazil and South Africa.

Already, several MNCs in India have invoked provisions of bilateral investment pacts in order to enforce rights they claim have been violated. UK-based telecom major Vodafone plc sent a notice under the India-Netherlands treaty through its Dutch subsidiary Vodafone International Holdings BV against the retrospective application of capital gains tax in the Finance Act, 2012. A spate of similar notices have been sent out by global telcos after the Supreme Court cancelled telecom licenses (see graphic).

Although India has signed similar pacts with over 70 countries, their implications have hit home only in the past couple of years. For instance, in 2011, the government faced an adverse decision by a Singapore-based United Nations Commission on International Trade Law (UNCITRAL), which adjudicated a dispute between the public sector Coal India and an Australian firm, White Industries.