Sending Negative Messages to Foreign Investors


Sending Negative Messages to Foreign Investors

India attracted the highest ever FDI of $81.72 billion in 2020-21. Some economists argue that the surge in FDI inflows is driven by unprecedented short-term portfolio investment inflows and a few major acquisition deals involving select corporations.

Prabhash Ranjan (soon to be Jindal Global Law School Professor and Vice Dean) and  Pushkar Anand (Assistant Professor of Law at Delhi University) argue that “an important factor that propels 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 when the host state refuses to do so, it rattles the investors, shakes their confidence in the host state’s credibility towards the rule of law, and escalates the regulatory risk enormously. Sadly, to an extent, this has been India’s story over the last few years.”

Challenging  awards: For example, note the two authors, India last year  “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 at the door of the United Progressive Alliance-2 (UPA-2) 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. India has challenged both the awards at the courts of the seat of arbitration……..”

Another example is 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 UPA-2 government annulled this agreement arbitrarily on the grounds of national security. This annulment led to three legal disputes — a commercial arbitration between Antrix and Devas Multimedia at the International Chambers of Commerce (ICC), and two BIT arbitrations brought by the Mauritius investors in Devas Multimedia under the India-Mauritius BIT and by Deutsche Telekom, a German company, under the India Germany BIT. India lost all three disputes. The ICC arbitration tribunal ordered Antrix to pay $1.2 billion to Devas after a U.S. court confirmed the award earlier this year…….”

After the ICC award, “Indian agencies started investigating Devas accusing it of corruption and fraud.”  And “last month, the National Company Law Tribunal (NCLT) ordered the liquidation of Devas on the ground that the affairs of the company were being carried on fraudulently. Further, the NCLT directed the official liquidator to prevent Devas from perpetuating its fraudulent activities and abusing the process of law in enforcing the ICC award. This has led to Devas issuing a notice of intention to initiate a new BIT arbitration against India, sowing the seeds for complex legal battles again.”

Such efforts, “it sends out a deleterious message to foreign investors….”

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