India Plans New Law To Protect Foreign Investment

India Plans New Law To Protect Foreign Investment

In a 40-page initial draft, the finance ministry of India has proposed appointing a mediator and setting up fast-track courts to settle disputes between investors and the government. India is planning a new law to safeguard foreign investment by speeding up dispute resolution, aiming to attract more capital from overseas to boost stuttering domestic growth. An officials said that, the idea is to attract and promote the foreign investment, but a major issue for investors is enforcement of contracts and speedy dispute resolution.

The draft proposal is aimed at diffusing investor mistrust around the sanctity of agreements, which has worsened recently after some State government decided to review approved projects, or threatened to cancel the contracts. The investors can rely on the existing legal system to settle the disputes. It often takes several years for settling the cases. They previously had an option to take India to international arbitration courts under Bilateral Investment Treaties (BITs) and the government had agreed with dozens of nations. India has allowed most of its treaties to lapse, giving investors little to fall back in case of major disputes after suffering setbacks in overseas arbitration matters.

The foreign investors are protected through BITs which are agreements between two countries which gives protection and among other things legal resource via international arbitration in disputes with a government. India is entangled in more than 20 overseas arbitration cases which is the most against a country which was brought by major companies such as Vodafone, Nissan Motors, Deutsche Telekom, etc. for disputes over retrospective tax claims and breach of contracts. And if India loses these cases brought before most of BITs then it could end up in paying a billions of dollars as compensation which will be a huge burden. The government is thinking that India may not sign investment treaties with other nations if the new law which is modelled on a BIT which can give confidence to investors and a domestic law however cannot be a substitute for a BIT as its scope cannot allow investors to take their case to international arbitration.

Another source said that “they are yet to evaluate what the risks of bringing such a law are and if it would do more harm than good” and also “the finance ministry has held several meetings with other ministries to discuss the draft law”, he added.

Pratibha Jain, a partner at law firm Nishith Desai Associates who advises foreign investors, welcomed the government plans and said that “the idea is good and the government should consider broadening the scope to private disputes between foreign investors and domestic companies”.