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Addressing Corruption in India's Bilateral Investment Treaties: Analysis and Recommendations
Corruption and other non-investment issues are on the rise as a result of the growth of investor-state dispute settlement (ISDS) lawsuits. The handling of claims by ISDS courts regarding the involvement of foreign investors in corrupt practices within the host nation is becoming more and more necessary. The British Indian Investment Treaty (BIT), in particular, is the subject of this chapter's examination of corruption in India's foreign investment agreements (BITs). It's a positive move that India's new investment treaty practice includes safeguards to deal with unethical behavior by foreign investors. To enable the host state to file counterclaims against foreign investors, these clauses must be strengthened. The Devas v. India case, in which India mismanaged the problem of the suspected investor's participation in corruption, is also covered in this chapter.
After India reviewed its bilateral investment treaties (BITs), a new Model BIT was adopted in 2016 that kept ISDS and sent termination notifications to 58 nations, including Australia. Along with Bangladesh, Colombia, and Mauritius, India also released joint interpretive declarations to elucidate the meaning of several BIT clauses. India has only been able to conclude treaties with a small number of the 37 nations or blocs with which it hopes to revise BITs based on the new Model BIT. This indicates a low level of participation with BITs and emphasizes India's state-centric BIT strategy, which is unacceptable to the majority of bargaining partners. From 2016 forward, India's new investment treaty procedure was introduced, explicitly mentioning corruption. In Chapter III of the proposed Model BIT, which outlines the responsibilities of home states and investors, there were measures about corruption.
The proposed Model BIT in India sets numerous duties on foreign investors to combat corruption. These include refraining from providing undue favors to public employees or officials, using middlemen to accept bribes, and contributing unlawfully to political parties or candidates. The Legislation Commission of India (LCI) claims that these requirements are drawn from India's domestic legislation and international law, such as the Prevention of Corruption Act and the 2003 United Nations Convention Against Corruption. Foreign investors are also required by the proposed Model BIT to abide by domestic laws, which include those about taxes, labor, the environment, and human rights. The BIT's operation depends on compliance with certain requirements, which are essential to it. If these are not met, the investor will not be able to make use of the BIT's benefits.
The goal of the Indian Model BIT 2016 is to deal with the problem of investor obligation corruption. The final Model BIT reduces the number of requirements placed on investors, limiting them to two: corporate social responsibility (CSR) and adherence to host state legislation. The final Model BIT is different from the draft Model BIT in that it requires investors to refrain from providing public workers with excessive financial advantage or from participating in or encouraging corruption. It also includes rules on anti-corruption, encouraging investors to voluntarily integrate globally recognized norms of CSR in their internal policies. Because it is optional, investors are guaranteed not to violate Article 12 should they neglect to integrate anti-corruption concepts into their internal practices.
Regarding how corruption is addressed, the Model BIT in India's Investment Treaty (BIT) is different from the proposed Model BIT. It also prevents the host state from bringing counterclaims against the foreign investor and does away with the need for the investor to produce a self-certified declaration attesting to compliance with investor duties. Additionally, a footnote outlining mitigating considerations is included in the final Model BIT, which may enable the host state to file a counterclaim for corruption. To make sense of ambiguous BIT clauses, India has also inked Joint Interpretative Statements (JISs) with other nations. While the JIS with Bangladesh and Colombia is for current BITs, the JIS with Mauritius is more limited in scope and explains just a few aspects.
Fighting corruption in investment treaty arbitration is a priority recognized by the Joint Investment Security (JIS) between India and Mauritius. Nevertheless, the agreement between Bangladesh and Colombia and the JIS with Mauritius does not address corruption. The JIS also specifies that individuals or businesses owned or managed by individuals of a non-contracting party who are suspected of engaging in fraud, money laundering, or corruption are not considered investors under the terms of the India-Mauritius BIT. This terminology can be abused by the host state and is overly severe for international investors. The JIS also specifies that individuals or businesses that are directly or indirectly owned or controlled by individuals from a non-contracting party are not considered investors under the terms of the India-Mauritius BIT.
Public officials suggested restricting the S-band spectrum for military and strategic uses between 2005 and 2007. The media started to report on allegations of corruption against Indian space authorities in connection with the S-band lease to Devas. The Antrix-Devas agreement should be canceled, according to the Indian Department of Space's recommendation, which the Indian Space Commission approved in 2010. Later, the Indian government renounced the deal, claiming the growing need for the distribution of spectrum for social and national requirements. Devas filed for arbitration against Antrix, and the decision was made in Devas' favor, requiring Antrix to provide USD 562.5 million in damages. Anti-corruption clauses should be reinforced in any future investment treaties India negotiates, enabling the government to file counterclaims against foreign investors. The Indian legal system moves too slowly, and ISDS courts have to require more evidence to prove cases involving corruption.
- India's new Model BIT includes provisions to address and prevent foreign investor corruption.
- Current BITs restrict host states from filing counterclaims against corrupt foreign investors.
- The Devas v. India case highlights the need for robust anti-corruption clauses in future investment treaties.
