Investor-State dispute settlement (ISDS) cases and India: affronting regulatory autonomy or indicting capricious state behaviour?

• DOI: https://doi.org/10.1108/JITLP-10-2021-0053
• Published date: 07 December 2021
• Date: 07 December 2021
• Pages: 42-64
• Subject Matter: Strategy,International business,International business law,Economics,International economics,International trade
• Author: Prabhash Ranjan

Investor-State dispute settlement

(ISDS) cases and India: af‌fronting

regulatory autonomy or indicting

capricious state behaviour?

Prabhash Ranjan

Jindal Global Law School, OP Jindal Global University, Sonipat, India

Abstract

Purpose –The dominant narrativein the investor-State dispute settlement (ISDS) systemis that it enables

powerful corporations to encroach upon the regulatory power of developing countries aimed at pursuing

compelling public interest objectives. The example of Phillip Morris, the tobacco giant, suing Uruguay’s

public healthmeasures is cited as the most signif‌icant example to prove this thesis.The other side of the story

that States abuse their publicpower to undermine the protected rights of foreign investors does not get much

attention.

Design/methodology/approach –This paper reviews allthe ISDS cases that India has lost to ascertain

the reason why these claims were brought againstIndia in the f‌irst place. The approach of the paper is to

study these ISDS cases to f‌ind out whether these cases arose due to abuse of the State’s public power or

affrontedIndia’s regulatory autonomy.

Findings –Against this globalcontext, this paper studies the ISDS claims brought againstIndia, one of the

highest respondent-State in ISDS, to show that they arosedue to India’s capricious behaviour. Analysis of

these cases reveals that India acted in bad faith and abused its public power by either amending laws

retroactively or by scrapping licences withoutfollowing due process or going back on specif‌ic and written

assurances that induced investors to invest.In none of these cases, the foreign investors challenged India’s

regulatory measures aimed at advancing the genuine public interest. The absence of a “Phillip Morris

moment”in India’s ISDSstory is a stark reminder that one should givedue weight to the equally compelling

narrativethat ISDS claims are also a result of abuse of public power by States.

Originality/value –The originality value of this paper arises from the fact that this is the f‌irst

comprehensive study of ISDScases brought against India and provides full documentation within the larger

global context of rising ISDS cases.The paper contributes to the debate on international investment law by

showing that in the case of India most of the ISDS cases brought were due to India abusingits public power

and was not an affronton India’s regulatory autonomy.

Keywords India, BIT, Investment treaty, ISDS, Regulation, Bilateral investment treaties,

Retroactive taxation

Paper type Research paper

1. Introduction

The virulent critics of international investment law chastise the investor-State dispute

settlement (ISDS) [1] for maximizing investor protection and protecting the economic

interests of neo-colonial powers i.e. of countries with a high level of economic development

to the detriment of poorer nations (Schultz and Dupont, 2014). Arguably, over-powered

foreign investors use the ISDS mechanism to bring treaty-based claims against States that

encroach upon their sovereignright to regulate in public interest like the protectionof public

health and the environment (Tienhaara,2011). The most signif‌icant and inf‌luential example

in this regard is Philip Morris, the corporate tobaccogiant, suing Uruguay for its sovereign

JITLP

21,1

42

Received4 October 2021

Revised3 November 2021

Accepted3 November 2021

Journalof International Trade

Lawand Policy

Vol.21 No. 1, 2022

pp. 42-64

© Emerald Publishing Limited

1477-0024

DOI 10.1108/JITLP-10-2021-0053

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1477-0024.htm

regulatory measure aimed at protecting public health by restricting the marketing of

tobacco products [2].This dispute became the “poster-boy case”to demonstratethe systemic

def‌iciencies of the ISDS system [3]. On thesame lines, there have also been other high-prof‌ile

cases such as Vattenfall challenging Germany’s nuclear power phase-out under the Energy

Charter Treaty [4]; the renewable energy cases against Spain (Schmidl, 2021) and Dow

Chemical challenging Canada’s regulatory measure aimed at better pesticide usage (Dow

AgroSciences v. Canada, 2009). On the basisof these cases, it is contended thatISDS claims

lead to “regulatory chill”–the failure of host States to regulate in the public interest,

judiciously and effectively, due to fears of ISDS claims (Tienhaara, 2017). The ISDS

mechanism is alsosneered for bias in the favour of foreign investors(Van Harten, 2012).

On the other hand, some maintain that these criticisms are not backed by evidence

(Alvarez and Willinski, 2016;Schill, 2016). For instance, on the issue of the ISDS system

being dominated by arbitrators from developed countries who are biased against

developing countries, Franck’s research shows that statistically, the outcome of investment

treaty arbitration is not reliably linked with the development status of the presiding

arbitrator (Franck, 2009). Likewise, Reisman argues that given foreign investors sunk in

substantial capital in the host State, in the absence of an ISDS mechanism, there will be no

parity between the investor and the host State (Reisman, 2009). Also, important to bear in

mind that there have been instances where foreign investors used the ISDS mechanism

because States abused their public power and behaved arbitrarily, chipping away at the

legal rights of foreign investors. An important case in this regard is Yukos v Russia [5].

Russia arrested Mikhail Khodorkovsky, the Yukos Chairman, in 2003, accusing him of tax

evasion and fraud, forcing him to sell his company. It is widely believed that the Russian

Government retaliatedagainst Khodorkovsky for his political activism (Puig and Strezhnev,

2017). The assets of Yukos were assignedto a state oilcompany. Under the guise of taxation

measures, Russia aimed at bankrupting Yukos and appropriating its assets [6]. The

shareholders of Yukos futilely tried recovering damages from Russia in various domestic

courts all over the worldtill they got relief from an ISDS tribunal.

The Philip Morris and Yukos cases, in a way, present the entire spectrum of debate on

ISDS. On the one hand, the narrative is thatinf‌luential corporations use their power through

ISDS to muzzle public interest regulation in weaker States [7] (the Philip Morris narrative).

On the other hand, the narrative is that the ISDS mechanism enables private powerless

investors to guard themselves againstthe arbitrariness of States (Puig and Strezhnev, 2017)

(the Yukos narrative). The objective of this paper is to show that the ISDS claims brought

against India –an importantdestination for foreign investment [8]–are closer to the Yukos-

narrative in ISDS. The paper will study the high-prof‌ile ISDScases against India, especially

those where a decision is available, to prove that most of these cases arose due to India

abusing its regulatorypower.

To substantiate this point, the paperdivides the ISDS claims brought against India into

different categories.So, Section 3 will discuss the White Industries v India claim brought due

to the actions of the Indian judiciary. Next, in Section 4, the paper studies the ISDS claims

that surfaced due to the cancellation of spectrum licences. Section 5 comprehends the ISDS

disputes brought due to the imposition of taxes retroactively. In Section 6, the paper

discusses the cases where foreign investors sued India due to the actions of India’s federal

governments. Finally, Section 7 concludes by observing that ISDS claims against India

demonstrate how foreign investorsused the ISDS mechanism to call out the Indian State for

its capricious behaviour. Beforea detailed discussion of these cases, Section 2 offers a brief

overview of ISDS claimsagainst India with a focus from 2011 onward.

Indicting

capricious

state

behaviour

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