India may restart bilateral investment treaty talks with UK as model text nears finalisation
India's internal review of a revised Model Text for the Bilateral Investment Treaty (BIT) is nearing completion, with Cabinet approval expected soon
The revised text is being examined for provisions that make the treaty more attractive to foreign investors while retaining India's sovereign safeguards
Once finalised, the new text is expected to pave the way for resuming BIT negotiations with the United Kingdom
Talks with the UK had earlier stalled over disagreements on taxation carve-outs and most-favoured-nation (MFN) treatment, following a history of investor-state arbitration cases against India
Bilateral Investment Treaty (BIT) and India's Model BIT (2016)
A Bilateral Investment Treaty is an agreement between two countries setting the terms and conditions for private investment by nationals/companies of one state in the other. India terminated most of its old-generation BITs after 2016 (following a wave of investor-state arbitration claims) and adopted a new Model BIT that year to serve as the template for future negotiations. The Model BIT tilts sharply toward protecting the host state's regulatory space rather than offering broad investor protections.
Key Details
- Approved in 2016 by the Union Cabinet after India faced a spate of investor-state dispute settlement (ISDS) claims (Vodafone, Cairn Energy, White Industries, Vedanta, Children's Investment Fund, Sistema)
- Requires foreign investors to exhaust local remedies for five years before accessing international arbitration — the most contested feature
- Excludes the Most-Favoured-Nation (MFN) clause entirely, to prevent "treaty shopping" where investors invoke more favourable provisions from India's other treaties
- Narrows the Fair and Equitable Treatment (FET) standard to cases of denial of justice/due-process violations, dropping the broader "legitimate expectations" doctrine
- Explicitly excludes taxation measures from the scope of BIT protections, so tax disputes cannot be arbitrated as investment disputes
The "model text" being finalised is a further revision of this 2016 template, calibrated to be less restrictive so that partners like the UK — who have sought carve-outs on taxation and MFN treatment — find it workable enough to resume talks.
Investor-State Dispute Settlement (ISDS) and Retrospective Taxation Cases
ISDS is a mechanism within investment treaties allowing a foreign investor to directly sue the host government before an international arbitral tribunal (commonly under UNCITRAL rules) for treaty breaches, bypassing domestic courts. India's experience with ISDS — especially cases arising from the 2012 retrospective tax amendment — shaped its defensive, sovereignty-protective Model BIT.
Key Details
- Vodafone International Holdings BV v. India — arose after India retrospectively amended the Income Tax Act (2012) to tax the 2007 Vodafone-Hutchison deal; the tribunal ruled against India under the India-Netherlands BIT
- Cairn Energy plc & Cairn UK Holdings v. India — a Permanent Court of Arbitration tribunal awarded Cairn over $1.2 billion in 2020 for breach of fair and equitable treatment under the India-UK BIT, arising from the same retrospective tax provision
- Parliament repealed the retrospective taxation provision via the Taxation Laws (Amendment) Act, 2021, to settle these disputes and restore investor confidence
- These cases are why taxation is now categorically excluded from India's Model BIT
Because the Cairn dispute was fought precisely under the now-expired India-UK BIT, taxation exclusion is a central sticking point in any new India-UK investment treaty text — the UK side has sought assurances that go beyond India's blanket carve-out.
Distinguishing BIT from FTA/CEPA
A BIT deals only with protection of cross-border investment (post-establishment protections, dispute resolution), whereas a Free Trade Agreement (FTA) or Comprehensive Economic Partnership Agreement (CEPA) covers trade in goods and services, tariff schedules, and market access. The two are negotiated separately, though sometimes in parallel with the same partner.
Key Details
- India-UK relations currently run two parallel tracks: the India-UK Free Trade Agreement (concluded 2025, covering tariffs and market access) and the long-pending India-UK BIT (investment protection, still under negotiation)
- Comparable Indian investment treaty: India-UAE Comprehensive Economic Partnership Agreement (CEPA), 2022, which also includes an investment protection component
- India does not currently have an operative BIT with the UK; the previous one lapsed after India's 2016-17 mass termination of old-generation BITs
The FTA and BIT tracks are distinct — the UK FTA does not itself protect UK investors' assets in India from expropriation or discriminatory treatment; only a revived BIT can do that, which is why India and the UK are negotiating this separately.
- India's Model BIT was approved by the Union Cabinet in 2016
- Local remedies exhaustion period under the Model BIT: 5 years before international arbitration
- Cairn Energy arbitration award against India (2020): over $1.2 billion, under the now-expired India-UK BIT
- Retrospective tax provision (introduced 2012) was repealed via the Taxation Laws (Amendment) Act, 2021
- India terminated the majority of its ~74 old-generation BITs after 2016-17 to migrate partners to the new Model BIT template