An investment treaty arbitration (ITA) tribunal has found the Republic of India guilty of violating the India-Australia bilateral investment treaty (BIT). Although the award was issued in November 2011, the Indian government has been silent on the issue. Media reporting brought the arbitral award into the public domain almost three months later. The principle of confidentiality that governs international commercial arbitration (ICA) should not apply to ITA, which, unlike ICA, adjudicates over sovereign functions of the state. Consequently, it has an impact beyond the parties in the dispute. This award is an indictment of India?s sovereign function, having ramifications both for the executive and the judiciary. Therefore, people at large have a right to know about the issues involved and the outcome of the case. This is the first ITA ruling testing Indian BITs. Many foreign investors dragged India to ITA during the Enron debacle. However, the case got settled on favourable terms. As a result, Indian BITs were never put to test.

This case arises from the inordinate delay that White Industries, an Australian company, faced in Indian courts to enforce a foreign commercial arbitration award against Coal India. White Industries challenged this delay as a violation by India of its obligations under the India-Australia BIT. White Industries argued that by delaying the enforcement of the foreign arbitral award, India has violated the provisions on fair and equitable treatment (FET), expropriation, MFN and free transfer of funds of the India-Australia BIT. The tribunal dismissed White Industries? allegations related to the violation of FET, expropriation and free transfer of funds. However, it agreed with White Industries that India has violated the MFN provision of the India-Australia BIT.

The MFN provision obliges India to treat investments in its territory no less favourably than investments of investors of a third country. White Industries used this MFN provision to treaty-shop a beneficial provision in the India-Kuwait BIT, which obliges India to provide Kuwaiti investors with an ?effective means of asserting claims and enforcing rights with respect to investments?. The ITA tribunal allowed White Industries to undertake such treaty shopping because the MFN provision in the BIT does not recognise any exception to this effect. The tribunal found that the Indian judicial system has

been unable to deal with White Industries? jurisdictional claim in over nine years. The tribunal held that this delay by Indian courts

violates India?s obligation to provide White Industries with ?effective means? of asserting claims and enforcing rights, which, in turn, is a violation of the MFN provision. The tribunal ordered India to

pay damages to White Industries to the tune of A$4,085,180 plus $84,000 for the fees and expenses of arbitrators and A$500,000 for arbitral expenses. All these payments have to be made with an interest of 8% per annum from March 24, 1998, until the date of payment.

There are six key aspects of the ruling that need to be circumspectly noted. First, a sizeable chunk of tax payer?s money will be used to pay damages to White Industries, hence having an effect on the public exchequer. Second, the inordinate delay by the Indian judiciary in disposing matters related to a foreign investor can, potentially, violate India?s BIT obligations. Third, the ruling has another important message for the higher judiciary that has expansively interpreted the Arbitration and Conciliation Act of 1996 to set aside or not enforce ICA awards in India. While dismissing White Industries? expropriation claim, the tribunal said that this claim is unfounded because Indian courts are yet to dispose of Coal India?s application to set aside the foreign arbitral award and that the award has not been ?taken? or set aside. Thus, the tribunal clearly indicated that a foreign arbitral award is an ?investment? under the BIT and that the setting aside of such valid foreign awards could constitute expropriation under the BIT. This observation is vital in light of the debate in India over the role of the judiciary in the enforcement of ICA awards.

Fourth, again on the question of expropriation, the tribunal disagreed with India that ?the only form of contractual rights that are capable of being expropriated are those that are a form of intangible property?. The tribunal stated that all contractual rights, whether tangible or intangible, are capable of being expropriated. Fifth, the tribunal also made it clear that deference to India?s laws in the India-Australia BIT does not mean that national laws can ?trump? international laws. Thus, a provision subjecting BIT to national laws cannot be used to undermine clearly stipulated BIT provisions.

Sixth, and most importantly, this ruling has shattered the sanguine belief in the Indian official establishment that Indian BITs adequately balance investment protection with India?s exercise of sovereign powers. A critical offshoot of the ruling is that BIT provisions like the MFN clause are vague and broad, which enabled White Industries to indulge in treaty-shopping and arrive at a result that India didn?t anticipate. This ruling should trigger a critical review of India?s BIT programme. Such a review is also imperative in light of India?s deepening integration with the global economy by signing more and more BITs and FTAs such as the India-EU FTA.

The author is a PhD Candidate in Law at King?s College, London.