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Correcting Corruption: An International Wrong?

Correcting Corruption: An International Wrong?

By Shubhangi Roy

While the Supreme Court’s decision in the case of Centre for Public Interest Litigation v. Union of India cancelling the 122 fraudulently issued 2G licences was considered as upholding the constitutional fundamentals of equality and equanimity, it has exposed the Indian government to actions under international investment arbitration for disregarding the very same principle of parity in context of their commitment to international trade.

The principle of international law on which such a claim will be based is failure of the Indian government to meet the necessary preconditions to invoking its right of expropriation through the above mentioned judgment. The Supreme Court considered the possibility when in its judgment it referred to those foreign investors that had invested in the telecom companies whose licenses were being revoked. There was much speculation in the arbitration academia about the possibility of the same. Like all premonitions bad, it did come true in October of last year when Khaitan Holdings (Mauritius) Limited (KHML) served a notice of arbitration to the Union of India.

Not surprisingly, the grounds for requesting such arbitration was unwillingness of the Indian Government to compensate the claimant for the losses arising out of its act of expropriation stemming from the SC judgment. The proposed arbitration is to be governed by the UNCITRAL Model Law. India has a bilateral treaty with Mauritius called BIPA (Bilateral Investment Promotion & Protection Agreement) which will govern the arbitration.

The odds in an international arbitration, more often than not, favour the claimant. A cursory perusal of decisions in cases like that of Metaclad v. Mexico, Goetz v. Burundi etc might also seem to indicate the same. There exists a potentially potent ground of legitimate expectation that the claimant is likely to deploy as well.

A prima facie glance at the present stand of law might give the impression of an easy award tipping in favour of the claimants but all is not lost for India, especially when the attitude of  ECHR and ICSID tribunals is considered. They intend to strike a balance between obligations of a host state to the investing states and the public interest of host states in cases of corruption much more adequately as was observed in case of World Duty Free v. Kenya. The Indian government’s offer to adjust the money of telecom companies against the fresh auction were they to participate in the same is and the failure of the Indian counterpart of  the claimant to participate in the such auctions as a possible waiver are possible grounds of objection to the claim.

However, the pending arbitrations are not merely troublesome on their own but also indicative of an international investment travesty in waiting for India. It highlights another trouble that has been simmering under the surface for the Indian government for a long time– the repercussions of hurriedly executed and ill-thought-of Bilateral Trade Agreements that the country has been committing to over the past decade. In its enthusiasm to prove its credibility as an investor friendly country, India has entered into more than 74 BITs with negotiations underway for another 22. Perhaps it is time to improve the negotiations to an extent and deliberate on including such clauses which provide greater flexibility to the Indian state to legislate and rule on policy matters important to public welfare without making it vulnerable to possible investment litigations.

A caged bird is often the imagery that the romantics associate with India. We were under foreign rule for a century to be followed with another long term enslaved to our own corrupt politicians. As India awakens to a more conscious future, it is important that we should not be enslaved and wrapped in arbitrations and litigations for the coming decades merely because of our eagerness to establish ourselves as a sought after investment destination.

The 2G scam has acted as an effective eye opener to the pathetic condition of the domestic Indian polity. It might as well ignite a debate on India’s approach to its bilateral trade and prevent India from being held at the figurative gun point of possible costly arbitrations by foreign investors in the future.

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