In a significant development, the Union Government has ordered a freeze of all Bilateral Investment Protection Agreements (BIPA) negotiations till a review of the model text of BIPA is carried out and completed. This follows a spate of show cause notices on the Government by foreign companies seeking to recover their investments under the agreement.
The freeze will continue till the Government reviews the model text of BIPA is completed. The issue has figured in summit meetings with Russian President Valdimir Putin having raised the issue in his annual meeting with Prime Minister Manmohan Singh last month.
The spate of notices under BIPA began with the Vodafone case but the Supreme Court’s cancellation of the 2G licenses led to more companies following suit with firm backing from governments where they are headquartered. The adverse experience with BIPA with an estimated $5 billions hanging in balance could dampen the Foreign Office’s enthusiasm of inking the pact with a large number of countries.
Fearing the Government could be flooded with more notices in future, the Ministries of Finance and Commerce & Industry felt it was time India carried out a review of the model text of BIPA and therefore decided to put on hold all negotiations pertaining to BIPA till a thorough review is carried out. “It has been decided to review the model text of BIPA in the light of arbitration notice[s] received under different BIPAs. Therefore, pending review of the model text, all BIPA negotiations have been kept on hold. The government will proceed to negotiate BIPA agreements expeditiously once the review is complete,’’ said a communication by the Department of Economic Affairs.
Vodafone was first off the blocks with a notice to the government stating that it was covered under BIPA as an investor defined under Article 1(d) of the treaty. Its Dutch subsidiary Vodafone International Holdings BV served the notice. This was soon followed by another round of notices issued in the aftermath of Supreme Court cancelling 122 telecom licenses resulting in companies like Russian telecom giant Sistema, Norwegian telecom company Telenor and UAE-based Etislat.
Till date, India has signed BIPAs with 82 countries of which 72 treaties have been enforced. The first BIPA was signed in 1994 with UK. Besides, India has signed 17 Free Trade Agreements, Comprehensive Economic Partnership Agreement (CEPA), Comprehensive Economic Cooperation Agreement (CECA) and Preferential Trade Agreements (PTAs).
Among the companies that have s served notices under BIPA are Devas Employees Mauritius [BIPA with Mauritius]; Sistema Joint Stock Financial Corporation [Russia]; Telenor Asia [Singapore]; Capital Global Limited and Kaif Investment Limited [both Mauritius based-investors in Loop Telecom Limited under BIPA with Mauritius]; Vodafone International [the Netherlands]; and, the Children’s Investment Fund Management [the UK and Cyprus].
Following outcry by foreign investors and show cause notice issued by Vodafone on the issue, the government had last year constituted an inter-Ministerial Group (IMG) to look into the issue. The IMG had concluded that international taxation issues don’t come under BIPA. The IMG had also concluded in the Vodafone case that the issue was not covered under the India and the Netherlands BIPA. In fact, the feedback to the IMG from all the Ministries had indicated that taxation issues were not covered under BIPA. The group headed by Revenue Secretary also included Secretaries of the Department of Economic Affairs, Law and Justice Ministry, Telecom Ministry and the Ministry of External Affairs.