Despite arbitration tug of war, mutual settlement is key

For the Indian foreign direct investment landscape, the year 2020 may have been a welcome bag of enhanced equity inflows, bold policy changes and billion-dollar milestones. However, international decisions against Government of India in the cases of Cairn Energy and Vodafone in the final quarter of 2020, and the decision by India to appeal against these awards, have served to puncture the bag of investor trust and India’s promise to honour its commitments to foreign investors under bilateral investment treaties. Editorial | Salutary lesson: On the Vodafone case On December 22, 2020, the Permanent Court of Arbitration ruled that India had failed to uphold its obligations to Cairn under the India-United Kingdom BIT by imposing a tax liability of ₹10,247 crore and the consequent measures taken to enforce the liability. The Permanent Court of Arbitration ordered the Government of India to pay Cairn approximately ₹9,000 crore for the ‘total harm’ suffered by Cairn. For instance, delays in Indian courts, uncertainty in Indian public policy vis-à-vis assessment of tax demands by foreign tribunals, and the Indian judiciary’s exceptional stance on non-enforceability of treaty awards in India may have been pivotal in Cairn’s decision.