India-UAE BIPPA: Government builds safeguards to protect itself

Economic Times | 18 Dec, 2013

India-UAE BIPPA: Government builds safeguards to protect itself

By Deepshikha Sikarwar, ET Bureau

The treaty with UAE will be renegotiated in 2016, by which time India would have introduced the new draft in all its investment agreements. The treaty with UAE will be renegotiated in 2016, by which time India would have introduced the new draft in all its investment agreements.

NEW DELHI: India has introduced provisions in the just-concluded bilateral investment protection and promotion agreement (BIPPA) with the United Arab Emirates to ensure that only executive decisions can be challenged and that too within a stipulated period.

This comes in the wake of Vodafone threatening to use India’s BIPPA with the Netherlands to challenge the tax levied on the acquisition of an Indian business through a retrospectively applied change in the law, besides other disputes raised by overseas investors seeking recompense through the respective country treaties.

The inclusions in the UAE treaty will protect the Indian government from international arbitration challenges in the event of Parliament changing the law or judicial pronouncements having to be implemented. "Some elements of the new model text have been introduced in the BIPA signed with UAE," said a finance ministry official.

India-UAE BIPPA: Government builds safeguards to protect itself
Although the investment treaty with UAE is based on the old model text that prevailed at the time when negotiations began, new provisions have been incorporated from the latest draft. The accord, however, extends most favoured nation treatment to UAE investors.

Under the treaty, investors will be able to use only one of the options available for judicial remedy - domestic law or arbitration under the United Nations Commission on International Trade Law (Uncitral) or the International Council of Societies of Industrial Design (Icsid).

The treaty with UAE will be renegotiated in 2016, by which time India would have introduced the new draft in all its investment agreements. "India has lost a case and also faces several challenges under BIPPA. There is clearly a case for tightening the draft as lately there is a tendency among investors to invoke BIPPA provisions in sundry commercial disputes," said Sunil Jain, partner at law firm J Sagar Associates.

The BIPPA with the UAE was put on the fast track as the emirate insisted on signing the agreement before any fresh investments could flow into India after some Gulf investors ran into trouble.

Telecom major Etisalat wrapped up its India operations after Supreme Court cancelled several mobile licences last year in the 2G spectrum case. Etisalat had a joint venture with DB Group for its telecom venture in India.

With the BIPPA now in place, the Abu Dhabi Investment Authority has lined up investments worth $2 billion that its representatives are expected to finalise after meeting Indian authorities in January.

The UAE has been among the top 10 investors in India, accounting for $2.6 billion since April 2000, or 1.27 per cent of the total.

As many as 17 companies or individuals including Deutsche Telekom, Germany, Vodafone International Holdings BV, Sistema of Russia, The Children’s Investment Fund and TCI Cyprus Holdings have served notice to India under various BIPAs after their investments ran into trouble or they faced adverse policy action. White Industries Australia has got a favourable award against India.

Vodafone had threatened to drag India to arbitration on the retroactive change in the law taxing its acquisition of Hutchison Essar in 2007. The British telecom company faces a tax liability of more than Rs11,200 crore, along with interest, on its purchase of Hutchison Whampoa’s stake in Hutchison Essar and is now in talks with Indian tax authorities for a settlement under local arbitration law.

BIPPAs seek to promote bilateral investment flows by assuring fair and equitable treatment on par with domestic investors on a postestablishment basis through reciprocal provisions such as the aforementioned national treatment, most favoured nation status and a mechanism for dispute resolution. The new text for the agreements is expected to be finalised by December.

source: Economic Times