Finance Ministry in talks to work out formal mechanism for global arbitration

The finance ministry is in talks with the ministries of law and external affairs to put in place an institutional mechanism to ensure international arbitrations under bilateral investment treaties (BITs) are handled better, two people aware of the matter said.

A response team within the government, comprising experts on taxation, global arbitration and other related aspects, may be created to deal with such notices.

The ministry is also firming up a new BIT template to ensure both the parties have adequate time-at least 2-3 years-to exhaust local legal remedies before pursuing global arbitration.

However, while the template would serve as a base for negotiations, there would be no one-size-fits-all framework and final BIT offers to various nations would vary, depending on India's strategic, economic and other considerations, the people told ET.

In the latest budget, finance minister Nirmala Sitharaman announced a revamp of the BIT framework to draw foreign investors. Earlier this month, she called for firming up standard operating procedures for responding to global arbitration cases.

Retaining policy-making space

A particular focus area of the BIT template would be India's insistence on retaining its sovereign policy-making space and this can't be challenged by any party, ET has learnt.

"There would be no compromise on this aspect," one of the people said. "The idea is to have investor-friendly provisions in the treaty without jeopardising sovereign space for policy-making."

The ministry is also studying various BITs entered into by other jurisdictions and may consider a "state-to-state" dispute resolution mechanism in select cases instead of the usual investor-state dispute settlement (ISDS) framework.

Under such a framework, one government has to take action on behalf of investors of that country against the other government.

This mechanism, some reckon, could lead to a greater acceptance of the sovereign policy-making rights of a nation by another than under the extant ISDS.

An investment treaty with a state-to-state settlement mechanism was signed between Australia and the UAE last year.

Between 1996 and 2016, India had signed BITs with dozens of countries on the basis of an old template that led to litigations in several cases. This prompted the government to firm up a new template in 2016 and started to negotiate on the basis of that. However, it now feels that even the 2016 template requires to be revised, officials said.

In its BIT with the UAE last year, India eased certain provisions, which include a reduction in the period for investors to exhaust local remedies for any dispute to three years from the usual five years and bringing in the typically short-term portfolio investments under its ambit.