Cabinet note on proposed bilateral investment treaty in a month

The finance ministry is putting final touches to a note for the proposed bilateral investment treaty (BIT), which is expected to be presented before the Union Cabinet, led by Prime Minister Narendra Modi, in about a month's time.

The BIT is expected to replace the existing bilateral investment protection and promotion agreements (BIPPA). The draft BIT was kept in public domain in April for suggestions from stakeholders. The new treaty, once complete, could be signed with all countries with which India has signed BIPPA. While India has signed BIPPA with 72 nations, it has signed but not yet enforced those with an additional 11. Senior government officials said that there has been feedback from the general public and a number of stakeholders. They added that India has been conducting negotiations with a number of partner nations on the draft BIT and the points raised by them were also taken into consideration.

"We are in the final stages of preparing the Cabinet note on BIT. It is likely to be ready in a month's time," said a senior official, who did not wish to be named.

Business Standard has learnt that while there may be a number of changes in the final BIT compared with the draft BIT, there will be no amendment to three important and tough measures proposed in the latter, which had proposed to make it difficult for foreign companies to seek arbitration against Indian authorities through restrictions on dispute-resolution tribunals and their jurisdiction, when compared with the existing BIPPA.

The BIT has said that international tribunals would not have jurisdiction to re-examine any legal issue settled by, or review judgements of, an Indian judicial authority. They also could not question India's determination of whether a measure was taken for a public purpose or in compliance with its law. Public purpose is not defined in any treaty India has signed with other nations. It is kept ambiguous on purpose. The BIT has also proposed to keep any issue deemed a tax matter by the government outside of its ambit.

"Each nation has a separate criterion for what constitutes a public purpose. That is why it is never explicitly defined. And that is why, in India's case, a foreign arbitration authority or tribunal cannot question India's decision to deem any expropriation of a foreign investor's assets as public purpose," said a second official.

Officials confirmed that the proposals stated above may stay in the BIT that is cleared by Cabinet. "Tax will stay out of bilateral investment treaties," said the official quoted first.

The reason for such steps stemmed from foreign companies invoking BIPPA in their tax disputes with Indian tax authorities.

British telecom major Vodafone had invoked the India-Netherlands BIPPA, seeking international arbitration in its long-drawn Rs 20,000-crore tax dispute with the tax department, following the cancellation of conciliation talks.

Similarly, Finnish mobile handset maker Nokia resorted to the treaty to resolve the tax department's claim of tax liability, both existing and anticipated, for seven years from 2006-07. Cairn Energy, too, recently demanded compensation under the ambit of the India-UK Bilateral Investment Promotion and Protection Agreement from India for the Rs 10,200-crore tax notice slapped on Cairn India.

NURTURING BRANCHES OF INVESTMENT

• Tax issues to be kept out of BIT in bid to avoid Vodafone, Cairn-like situations
   
• Foreign tribunals cannot question decisions taken by Indian legal authorities
   
• Foreign tribunals cannot question India's determination whether an action was taken on public purpose
   
• Cabinet note on BIT may be ready in a month's time
   
• To incorporate feedback from stakeholders as well as partner nations