Bruised in recent years by a string of massive international lawsuits by foreign investors, the government of India unveiled plans in late March to revise its approach to foreign investment treaty making.

Revision may be an understatement. India's draft model treaty – the product of a slow-moving inter-ministerial working group – is a radical departure from the thousands of investment treaties that currently criss-cross the globe.


For decades, governments blithely signed bilateral treaties to protect crossborder investment, often giving foreign investors the right to leapfrog over local courts in case of future legal disputes with host country authorities.

Few in India were prepared for the resulting deluge of international arbitration claims. India faces claims from multinationals such as Vodafone, which objects to a retroactive tax assessment; US and German investors in an aborted satellite telecoms venture; and a French investor in a soured joint venture to operate a major port.

In an effort to rein in the number of foreigners who detour around Indian courts, India's newly unveiled investment treaty draft model would require foreign investors to exhaust local legal options before enjoying a right to go to international arbitration.

India also wants to curtail, significantly, the legal protections that were written into such treaties in the past. Government conduct would need to be "outrageous" or "egregious" in order for investors to be able to prove that they have been unfairly treated.

Furthermore, India proposes to curtail copycat lawsuits by multiple shareholders in a single venture by restricting the right to arbitrate to the foreign investor who controls or owns a majority stake.

In addition to offering narrower treaty protections to foreign investors, the new model under consideration would also impose a string of obligations on foreigners to comply with local laws, pay their taxes, and disclose information about their ownership. Such obligations may be hallmarks of good corporate citizenship, but their introduction into new treaties could place many legal pitfalls in the path of foreign investors that try to sue India. Only with time will investors understand what degree of non-compliance – trifling or substantial – could come back to haunt them in the future.

Not surprisingly, lawyers that specialise in advising foreign investors are wary of India's radical new proposals. The real test will come later, once the negotiating papers are finalised and put into action.

Will other governments agree to dramatically roll back the scope and reach of such international FDI treaties, or will India find itself without any dance partners? The first big test will be the US, which is seeking a new treaty with India – but, at least so far, on more conventional terms.

Luke Eric Peterson is the publisher of an online news service tracking and analysing legal disputes between foreign investors and host governments: