India is not unfamiliar with BIT arbitration - just last November, an arbitration tribunal constituted under the UNCITRAL Rules and sitting in Singapore in the White Industries arbitration against Coal India ruled that India had violated the terms of the India-Australia BIT. With Sistema and Telenor also recently threatening arbitration against India over the India Supreme Court's cancellation of their 2G licences, India is firmly under the BIT arbitration spotlight.
India is facing a tricky situation here with these potential arbitrations lining up. On the one hand, it would obviously like to retain and also increase the level of foreign investment in the economy. It needs to maintain a level of predictability and certainty in its laws and policies in order to achieve that, otherwise the risk of investing in India becomes too expensive and ultimately unattractive. But, quite understandably, India also doesn't want unwarranted external interference with its own policies, judicial, or legislative processes. Nobody does.
The next few months will be critical for India as it tries to strike the right balance. If India ultimately passes the proposed retrospective tax legislation into law and Vodafone commences arbitration as it says it will, then we may very well see a proliferation of similar arbitrations commenced by other affected investors against the Indian government- potentially a further US$6.5 billion worth of arbitration if the estimated figures quoted by the income tax department turn out to be accurate.
Jonathan Choo is a Partner at Olswang.
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