NEWS  India’s failure to honour adverse international judicial rulings hurts its image as an investment destination.

CONTEXT 

• Recently the Commerce Ministry reported that India attracted the highest ever FDI of $81.72 billion in 2020-21.
• However, several economists have argued that the surge in FDI inflows is driven by unprecedented short-term portfolio investment inflows and a few major acquisition deals involving select corporations.

ISSUES INVOLVED

• An important factor that attract investors to invest in foreign lands is that-
  • The host state will keep its side of the bargain by honouring contracts and enforcing awards even when it loses.
• But over the last few years India has been refusing to comply with the tribunal awards.
• Such behaviour of India has shook the confidence of investors in the country’s credibility towards the rule of law, and has escalated the regulatory risk enormously.

INDIA’S DEFIANCE OF AWARDS

Last year, India lost two high-profile bilateral investment treaty (BIT) disputes to two leading global corporations — Vodafone and Cairn Energy — on retrospective taxation.

• The responsibility for these two adverse arbitral awards lies with the previous government that startlingly amended the tax law retrospectively after losing a case to Vodafone at the Supreme Court.
• The current government, instead of remedying the past mistake by honouring both the arbitral awards and restoring India’s lost credibility in the eyes of the investor community, continues to exhibit the same defiance.
• Currently, India has challenged both the awards at the courts of the seat of arbitration.
• As India drags its feet on the issue of compliance, Cairn has launched legal proceedings in the U.S. to enforce the arbitral award by seizing the assets of Air India.

The other set of high-profile BIT disputes for India arose from the cancellation of an agreement between Antrix, a commercial arm of the Indian Space Research Organisation, and Devas Multimedia, a Bengaluru-based start-up, for the lease of satellite spectrum.

• The agreement was arbitrarily annulled on the grounds of national security.
• India has lost all three disputes involved in the case.
• As a result the ICC arbitration tribunal has ordered Antrix to pay $1.2 billion to Devas after a U.S. court confirmed the award earlier this year.

• India in turn has challenged the tribunal award in the Swiss Federal Tribunal (being the court of supervision of the arbitration) requesting for annulment, but lost the case.
• Also after the ICC award, Indian agencies started investigating Devas accusing it of corruption and fraud.

CONCLUSION

• A closer reading of these cases reveals that whenever India loses a case to a foreign investor, immediate compliance rarely happens.
  • Instead, efforts are made to delay the compliance as much as possible.
• Although these efforts may be legal, they send out a deleterious message to foreign investors.
• It shows an uncooperative attitude towards adverse judicial rulings.
• This attitude of the Indian governments will only hurt India’s credibility in the eyes of the investor community and will deter the scope of possible foreign investments in the future.

Reference:

1. https://www.thehindu.com/opinion/op-ed/rattling-foreign-investors/article35026303.ece