India must reduce dependency on foreign law firms in investment arbitration: Justice BV Nagarathna

Justice BV Nagarathna of the Supreme Court on Sunday highlighted the need for capacity building in international commercial and investment arbitration, emphasising that India must develop its own cadre of legal professionals to handle complex disputes..The judge underscored the importance of reducing India's dependency on foreign law firms in investment arbitration, stating that fostering a new generation of experts would not only save costs but also enhance India's legal and intellectual standing in global dispute resolution..Speaking at the inauguration of the first Post Graduate Certificate Diploma Course on International Commercial and Investment Treaty Arbitration at National Law University (NLU) Delhi, Justice Nagarathna said that the course would play a key role in training law students, practitioners and government officials in handling such disputes."The establishment of the Chair on Investment Treaties and International Commercial Arbitration at NLU Delhi will have a transformative impact," she said, adding that it would not only create qualified lawyers and public officers equipped to defend India, but also contribute to academic scholarship in the field..Tracing India's journey in bilateral investment treaties (BITs), Justice Nagarathna referred to the first BIT India signed with the United Kingdom in 1994 and the subsequent challenges the country has faced in investment arbitration. She cited the 2011 White Industries case as a turning point, where India was held in breach of its treaty obligations due to judicial delays."With due respect, I find that the award reflects the lack of appreciation of the Indian judicial system, which caters to a vast population of over 1.4 billion people in accordance with the Indian law," she said.The judge also noted that after wide consultations, India introduced a revised Model BIT in 2016, which serves as the template for re-negotiating treaties. This led to the termination of 77 older-generation BITs while ensuring that sunset clauses preserved the rights of investors for a limited period. She also pointed out India's efforts to issue Joint Interpretative Statements with some countries to limit the broad interpretation of BIT provisions by arbitral tribunals..On the broader global front, Justice Nagarathna highlighted that India is not alone in reassessing its BIT framework, as countries like Australia, Germany, Indonesia, South Africa and several European and Latin American nations are also revisiting their investor-state dispute settlement (ISDS) mechanisms.The judge emphasised that international arbitration should balance investor protection with the sovereign rights of states to regulate in public interest. Citing examples of disputes involving tobacco regulations in Australia and nuclear policy decisions in Germany, she stated that such claims against sovereign states have raised concerns about the legitimacy of the arbitration process."Disputes brought by foreign investors challenging policy decisions of the government taken in public interest is a matter of serious concern. These disputes have raised serious doubts regarding the legitimacy of the process of dispute resolution itself," she remarked..Union Finance Minister Nirmala Sitharaman, who was the chief guest at the event, emphasised the necessity of a well-structured course on arbitration, stating that investment treaties must be drafted with precision to protect India's economic interests. "Based on old generation treaties, it sometimes allows investors to seek malicious benefit from them," she said, referring to instances where deep-pocketed commercial entities buy out arbitration cases and prolong disputes across jurisdictions.."Arbitrators often have ignored judicial decisions of the host country and even findings such as corruption etc found by the host country and puts states at conflicting positions to accept such awards," Sitharaman remarked..Former Supreme Court judge Justice Indu Malhotra, who played a key role in conceptualising the course, highlighted the growing practice of hedge funds purchasing arbitral awards and aggressively pursuing enforcement proceedings across jurisdictions. She also called for a dedicated bench in the Supreme Court to handle cases arising from international commercial and investment arbitration and recommended setting up a National Judicial College to educate judges on the evolving legal landscape.