Govt not planning major changes to dispute resolution with foreign firms

Foreign companies operating in India have long complained that dispute resolution in Asia's third-largest economy is time-consuming, difficult and a huge impediment to investing further

India is not planning to make major changes to how disputes with foreign businesses are resolved, according to a source with direct knowledge of the government's review of bilateral ​investment treaties.

Such a decision is expected to be a blow to overseas investors ​who had been hoping that India's decision last year to review how it structures bilateral investment treaties ‌would lead to a substantial relaxation of rules for settling conflict.

Foreign companies operating in Asia's third-largest economy have long complained that resolving disagreements that involve the Indian government or rules set by the government is time-consuming, difficult and a huge impediment to investing further.

 

In particular, India requires that disputes involving foreign companies first be heard in local courts for five years before international arbitration is allowed.

The requirement that local remedies must first be pursued will be kept, said the source.

A second source said, however, that the five-year time period will be shortened, possibly to two years.

Both sources, who work for the government, declined to be identified as the details were confidential.

A spokesperson for the federal finance ministry did not respond to a request for comment.

Some analysts said investor sentiment was ‌likely to be hurt.

"Investors should have option to decide on moving to a local court or international arbitration, and how they want to resolve the dispute," said Prabhash Ranjan, an academic and expert in bilateral investment treaties.

"If local remedies is insisted it should not be more than a year given the slowness in the Indian judicial system," he added.

India is currently negotiating free trade agreements with at least eight nations or blocs of nations and is holding parallel negotiations for investment treaties.

Key investment pacts with the UK and the European Union have been delayed even though broader trade ​deals have been finalised.

In recent years, India has made some departures from its so-called model bilateral investment treaty. A treaty signed ‌with the United Arab Emirates in 2024 and one with Israel implemented this year allow international arbitration to be sought after three years instead of the usual five.

In one of the most notorious examples of long-delayed ​dispute resolution, White ‌Industries Australia, a now defunct mining company, won a dispute against state-run Coal India over bonuses and payments via international arbitration. ‌But it then spent more than nine years seeking to have that decision enforced through Indian courts.

Eventually the company invoked the India-Australia investment treaty and an international tribunal in 2011 ruled that the prolonged delay had been ‌a breach ​of India's obligations ​under the treaty.

The Indian government will also keep taxation disputes outside the scope of investment treaties and will not compromise on its sovereign right to tax, the first source said, calling the issue a "red ‌line" for India.

The cabinet ​is expected to decide on changes soon, the source added.