Bilateral Investment Treaty is an agreement between two countries to ensure, among other things, that:

  1. Investors of either country are allowed to hire top management personnel of any nationality.
  2. Have the right to make investment related transfers.
  3. Assets belonging to one country’s investors in the country can only be expropriated in accordance with the international law.
  4. Investors will have access to building international arbitration in dispute settlement.


These are basically international agreements establishing the terms and conditions for private investment by nationals and companies of one state in another state.

The first generation of these treaties were Friendship, Commerce and Navigation Treaties (FCNs), which required the host state to treat foreign investments on the same level as investments from any other state, including in some instances treatment that was as favorable as the host nation treated its own investments. FCNs also established the terms of trade and shipping between the parties, and the rights of foreigners to conduct business and own property in the host state.

The second generations of these treaties are Bilateral Investment Treaties (BITs), which set forth actionable standards of conduct that applied to governments in their treatment of investors from other states, including:

  • Fair and equitable treatment
  • Protection from expropriation
  • Free transfers of means and full protection and security.


The distinct feature of many BITs is that they allow for an alternative dispute resolution mechanism, whereby an investor whose rights under the BIT have been violated could have recourse to International Arbitration, often under the auspices of the ICSID (International Center for the Settlement of Investment Disputes), rather than suing the host State in its own Courts.

India and BIT

The Government of India initiated the BITs in the mid 90s. The reason behind this instigation was to present favorable conditions and treaty based protection to the foreign investors and investments. It results in increased investment inflows, encourages a transfer of technology and modern management skills.

India’s participation to various BITs will give us a clear picture that each BIT is quite different from the other though there are many common characters present. These common characters are in the form of specific rights. The basic principle is that the Government will not put the investors and their investments to risks which are either unreasonable or inappropriate.

However, it is of utmost important to note that the Indian Government retains the freedom to determine which sectors are open to foreign investments and under what terms and conditions can those investments be made. The investments that are made in India must be established or acquired in accordance with the national laws of India.

Principles of BIT

Investor-State Dispute Resolution

An investor can directly initiate arbitral proceeding against a State without approaching its own government under a BIT. The investors under the Indian BITs have an option of approaching the International Centre for Settlement of Investment Disputes (ICSID) or approaching the United Nations Commission on International Trade Law (UNCITRAL).

National Treatment

The principle of National Treatment is the most important part of all the Indian BITs. It ensures that a foreign investor is treated at par with the domestic investor and is not subject to any unfair treatment.


The Indian BITs generally apply to existing and future investments pursuant to the date on which India entered into the BIT. It gives a very wide definition to the terms investment and investor. In such circumstances, the foreign investor even if its home State is not having a BIT with India, can have the benefits by creating a Special Purpose Vehicle (SPV)/Special Purpose Business (SPB) in a State, which has a BIT with India.


Expropriation is the act of a government in taking privately owned property, to be used for purposes designed to benefit the overall public. The following conditions are necessary for a legal expropriation:

  • It must have a public purpose.
  • It should not be discriminatory or arbitrary.
  • It must be conducted in accordance with due process.
  • It must be accompanied by adequate compensation.

There are two types of expropriation:

  • Direct
  • Indirect


The Indian BIT entails to direct expropriation.

Fair and Equitable Treatment

Fair and Equitable Treatment (FET) is again one of the most important principle that all the Indian BITs hold. A number of successful investment claims are based on breach of FET standard. There are four pillars which have developed over the period with regard to the FET standard which are:

  • Protection of legitimate expectations of investors.
  • Transparency and stability.
  • Non-denial of justice.
  • Prohibition of coercion and harassment.


Full Protection and Security

Full Protection and Security (FPS) is a principle which protects the assets of the investments from physical violence. The violence may be by the host State or even by third parties.

In India, there are a number of BITs requiring the host State to provide protection and security.

India has had some unpleasant experiences with the BITs. However, India has been meaning to satisfy the protections given to foreign investors under the BITs. With the increasing exposure of BITs, a lot can be seen in the near future.


Sanchayeeta Das


The Indian Lawyer


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