Sistema Sends a Notice under India-Russia Bilateral Investment Treaty to Settle Disputes Amicably

See this news item in the Hindu and this post in the International Law Curry blog providing information on the Notice sent by Sistema, a Russian Corporation alleging breach by India of the Agreement between the Government of Russian Federation and the government of the Republic of India for the Promotion and Mutual Protection of Investment dated 23.12.1994 (pdf) (India Russia BIT) and calling upon India to amicably settle the dispute between Sistema and India. Sistema's action comes after the licences of Sistema's affiliate Sistema Shyam TeleServices Ltd. (SSTL) in which Sistema owned about 56% stakes were declared illegal and quashed by a two judge Bench of the Supreme Court of India consisting of AK Ganguly & GS Singhvi, JJ. in Centre for PIL v. Union of India.

As per Article 9 of the BIT quoted below, where there is a dispute between an an Investor and a Contracting Party (in this case, India ) in relation to investments made in India concerning obligations under the BIT, the same is to resolved to the extent possible by amicable settlement and, if both parties agree, through conciliation under the UNCITRAL Conciliation Rules.In case such dispute cannot be amicably settled within six months from the date of dispute, the same shall be referred to arbitration under the UNCITRAL Arbitration Rules, 1976. Note that by virtue of Article 1(2) of the UNCITRAL Arbitration Rules, 2010, where an arbitration agreement is concluded prior to 15 August 2010, the 1976 version of the Rules would upply unless parties agree otherwise. Since Article 9 of the BIT does not refer to the UNCITRAL Arbitration Rules "currently in force", the 1976 Rules would apply. Relevant portions of Article 9 read:

"1. Disputes between an Investor of either Contracting Party and the other Contracting Party arising in relation to investments made in the territory of the State of the latter, concerning obligations under this Agreement, shall as far as possible be settled amicably including resort to, upon mutual agreement of the parties to the dispute, conciliation procedures under the Conciliation Rules of the United Nations Commission on International Trade Law (UNCITRAL).
2. If a dispute cannot be settled in such a manner within six months from the date either party to the dispute requested In writing amicable settlement, unless otherwise agreed to by both partie, the investor concerned may submit the dispute to an ad-hoc International arbitration tribunal set up in accordance with the Arbitration Rules of UNCITRAL..."

This seems to be a season for investment arbitration against India. See the previous posts in this blog on the White Industries investment arbitration against India. Sistem'a Press Release on the Notice can be accessed from this link. Considering the White Industries Investment arbitration and Sistema's recent action of invoking the dispute resolution provisions of the India Russia BIT, the Government of India might go ahead with its proposed action not to agree to arbitration clauses between Investor and the Government of India. Livemint in this news report states:

"As reported by Mint on 29 January, India is likely to exclude in bilateral trade pacts the clause that permits a foreign investor to sue the host country at an international dispute settlement agency. The department of industrial policy and promotion has, in principle, decided not to include such a condition. India had declined to include such a clause, also known as the investor-to-state dispute settlement mechanism, in negotiations over a trade pact with the European Union, Mint reported on 4 July. These negotiations are continuing."

We will follow this investment arbitration closely.

Reference of Disputes under Competition Act, 2002 to Arbitration: Delhi HC Says No

Union of India (UOI) v. Competition Commission of India (CCI), a case decided by the Delhi High Court on 23.02.2012 discusses the important issue of whether allegations relating to abuse of dominant position under Competition Law are arbitrable. 

Under Section 19(1) of the Competition Act, 2002 (hereinafter “2002 Act”), the Competition Commission (Commission) is given the discretion to conduct inquiry into an alleged contravention of Section 3(1) (relating to prohibition of anti-competitive agreements) or Section 4(1) (relating to prohibition of abuse of dominant position) on the basis of receipt of information along with fee from any person, consumer, consumer association or trade association.

An informant (Informant) had sent information to the Commission under Section 19(1) alleging that the Ministry of Railways and the Container Corporation of India (a Government of India Corporation primarily involved in container transportation through railroad) (CONCOR) had abused their dominant position. The allegations were that despite the Parent Company of the Informant entering into a Concession Agreement with Ministry and having invested Rs. 550 crores into the Project, the Ministry had abused its dominant position thereby contravening Section 4 of the 2002 Act. 

Section 26(1) of the 2002 Act empowers the Commission to order the Director General of the Commission to investigate if, based on the information supplied under Section 19(1), there is a prima facie case of contravention of Section 3(1) or 4(1). On the basis of the information supplied and after hearing the Informant, the Commission was of the view that there was a prima facie case and consequently, ordered the Director General to investigate into the matter (Order dt. 24.01.2011). The Director General took cognizance of the matter and issued notice to the Ministry of Railways. The said notice was challenged by a writ petition filed in the Delhi High Court raising several jurisdictional pleas. The petition was dismissed on 23.03.2011 on the ground that the Ministry could raise all those jurisdictional pleas even before the Commission.

Vide an application dt. 30.03.2011, the Ministry raised several jurisdictional objections before the Commission. The Ministry also prayed in the application that the jurisdictional objections should be decided first before going into the merits. Simultaneously, the Ministry moved an application under Section 8 of the Arbitration and Conciliation Act, 1996 (1996 Act) for referring the dispute to an arbitral tribunal in view of the arbitration clause in the Concession Agreement. The Commission dismissed the applications. According to the Commission, the scope of the proceedings under the 2002 Act relating to abuse of dominant position were completely different from an adjudication by an arbitral tribunal on the contractual rights of the parties. The Commission also relied Section 60 of the Act which gave an overriding effect to the 2002 Act "notwithstanding anything inconsistent therewith contained in any other law for the time being in force" and Section 62 by which it was provided that the 2002 Act "shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force". The jurisdictional objections on other grounds are not dealt with here. 

Against the dismissal order, the Ministry filed a writ petition before the Delhi High Court.

Contentions:

On Behalf of UOI (Ministry), it was contended that the issues raised before the Commission by Respondent 2 were contractual disputes which could be decided by the tribunal provided in the Concession Agreement. Additionally, it was also contended that since the railway transport industry was specifically reserved for the public sector under the Industrial Policy, 1991, the impugned acts were done in the exercise of sovereign functions. 

Apart from the jurisdictional objection that the writ petition was not maintainable for availability of adequate statutory remedy of appeal before the Competition Appellate Tribunal, it was contended by Respondent 2 that UOI was not discharging sovereign functions. 

Decision:

Vipin Singhi, J. of the High Court rejected the contentions of UOI. Its decision is summarized below:

• The 2002 Act is in addition to and not in derogation to any other law in force in India (Section 62). This is similar to Section 3 of the Consumer Protection Act, 1986 (1986 Act). A similar question arose under the Consumer Protection Act, 1986 in Fair Air Engineers v. NK Modi(1996) 6 SCC 385 wherein the Supreme Court observed that the 1986 Act provided an additional remedy.
• The nature of proceedings before the arbitral tribunal is different from that under the 2002 Act. Further, the focus of investigation by the tribunal is not the same as that of the Commission. The tribunal may not even go into the question of abuse of dominant position. Further, the arbitral tribunal is not the appropriate body to implement the 2002 Act for the following reasons:

o   It does not have the mandate to conduct an investigation under the 2002 Act.

o   The arbitral tribunal would not have the expertise or the resources for such an investigation

Consequently the court rejected the argument that the proceedings before the Commission are not maintainable in view of the arbitration clause. 

The judgement of the Delhi High Court in UOI v CCI can be accessed from here. The judgement came to the attention of this blawgger through this page in the website of Taxmann.

Opinions/ Editorials on the White Industries Investment Arbitration and its Implications

Mr. Prabash Ranjan, a PhD candidate in law, King's College, London and faculty member (on leave), NUJS has written a piece in the Financial Express on the implications of the White Industries award. The article can be accessed from here. Apart from the discussions on implications, the piece also critiques, perhaps rightly so, the Indian Government's silence on the award indicating lack of transparency.

Ms. Kumkum Sen, Partner, Bharucha & Partners discusses the award in this piece in the Business Standard. This article is more of a descriptive comment but concludes:

"There are whispers in the corridors of power that India has taken a decision to drop arbitration procedures, in all future BITs and CEPAS or make it specific to the treaty in hand – no more MFNs and grandfather clauses."

Part II: Comments on the Award in White Industries Investment Arbitration against India

In the last post we had listed the facts relevant to the investment arbitration between White Industries Australia Limited (WIAL) and the Government of India (India). In the next few posts, we would be dealing with the contentions of WIAL and India on several aspects. In this short post, we summarize the arguments of WIAL on whether it was an "investor" and whether it made the an "investment" for the purposes of the India Australia Bilateral Investment Treaty (BIT):

1. Article 1(d) of the BIT defines "investor" to mean:

"(i) in respect of India, a company or a national. A national is a person deriving status as an Indian national from the laws in force in India;
(ii) in respect of Australia, a company or a natural person who is a citizen or permanent resident of Australia. A permanent resident is a natural person whose residence in Australia is not limited as to time under its laws;"

WIAL is a "company" registered in Australia. "Company" is defined in Article 1(a) to mean "any corporation, association, partnership, trust or legally recognised entity that is duly incorporated, constituted, set up or otherwise duly organised (i) under the laws of a Contracting Party...". Since WIAL is a corporation duly incorporated under the laws of Australia, WIAL is an investor. Further, India does not dispute that WIAL is not an investor. Its case is only that WIAL has not made any "investment" as defined in the BIT.

2. As per Article 1(c) defines "investment" to mean: 

"every kind of asset, including intellectual property rights, invested by an investor of one Contracting Party in the territory of the other Contracting Party in accordance with the laws and investment policies of that Contracting Party, and in particular, though not exclusively, includes:
(i) moveable and immovable property as well as other rights such as mortgages, liens, or pledges;
(ii) shares, stocks, bonds and debentures and any other form of participation in a company;
(iii) right to money or to any performance having a financial value, contractual or otherwise;
(iv) business concessions and any other rights required to conduct economic activity and having economic value conferred by law or under a contract, including rights to search for, extract and utilise oil  and other minerals;
(v) activities associated with investments, such as the organisation and operation of business facilities, the acquisition, exercise and disposition of property rights including intellectual property rights;"

 "Investment" is broadly defined to mean every kind of asset, tangible and intangible. WIAL's investment consists of (a) all of its contractual rights under the contract, (b) all of its rights in relation to the bank guarantee, (c) all of its rights under the ICC Award given in its favour and against Coal India. 

3. The term "investment" is broadly defined by the BIT. In interpretation of the definition of "investment", plain meaning and ordinary must be attributed to the words in the definition in order to see if the purported investment comes within the definition of the same under the BIT. If plain meaning is attributed to the words in the definition, it would be seen that the rights of WIAL stated above would specifically come within the purview of clauses (iii- right to money or to any performance having a financial value, contractual or otherwise;) and (iv-business concessions and any other rights required to conduct economic activity and having economic value conferred by law or under a contract, including rights to search for, extract and utilise oil and other minerals;) of the definition of "investment". The contract between WIAL and Coal India Limited (CIL) conferred a "right to money" and the right to "conduct economic activity". Further, the commitment extended to mere provision of equipment and services, it included provision of guarantees.

4. The Salini Test does not apply to the BIT because the said Test applied only in the context of the double jurisdiction requirement under the ICSID Convention (The arbitral tribunal's jurisdiction depended on whether there was an "investment" as defined in the BIT as well as for the purposes of the ICSID Convention). Therefore, the Salini test is applicable to arbitrations under the ICSID Conventions, as confirmed in Mytilineos Holdings SA v. State Union of Serbia and Montenegro and Republic of Serbia (pdf) (Para 117-118) .

5. Even if Salini test is applicable, WIAL had satisfied the same for the following reasons:
a. As per Agreement between WIAL and CIL (Contract), the coal mine was to be developed over a duration of five and a half years, the Contract duration was six years and CIL had the right to retain the bank guarantee for several years. 

b. There was an element of risk involved in the project for the below reasons:
i) As stated by the Salini tribunal, the coal mine project was akin to "a construction that stretched out over many years, which total cost cannot be established with certainty in advance, creates an obvious risk for the contract".
ii) It was entitled only to a fixed fee irrespective of the expenses incurred over the contractual term.
iii)WIAL was exposed to the risk of encashment of bank guarantees whose quantum was large and also to the risk of unlawful retention of bank guarantees 

iv) In case of failure to meet the contractual obligations, it was bound to pay a penalty to CIL
v) Its bonus entitlement under the contract was at risk
c. The requirement that the investment should have contributed to the Host State's economic development is no more necessary in investment treaty arbitration. Nevertheless, WIAL's investment met even this criteria: (i) Piparwar was initiated by India to enhance its coal production to more than twice its annual production; (ii) the study conducted by WIAL to improve the productivity of Piparwar was even approved by India's Public Investment Board; (iii) approval by India shows that project contributed to the development of India; 

d. WIAL maintained about 38 of its employees (mostly technical staff) in the Piparwar coal mine and provided substantial know-how in the implementation of project. WIAL also transferred technology in
respect of two crucial processes in the coal mine. In view of the above, WIAL had made an investment even as per the Salini test.

In the next post, we shall see India's response on WIAL's contention that it was an Investor and there was Investment.