INDIAN Prime Minister Narendra Modi has repeatedly assured foreign investors that retrospective taxation would not be revived. He has also promised predictable tax regime.

An official release has quoted Mr. Modi as stating "retrospective tax was a thing of the past, and a closed chapter." He articulated his stance on retro tax at India-France Business Summit in Chandigarh on 24th January 2016.

In November 2015 while touring the UK, he reportedly stated: "We want to make sure our tax regime is transparent and predictable. We are also keen to see that genuine investors and honest tax payers get quick and fair decisions on tax matters."

Mr. Modi's assurances are, however, unlikely to bring comfort to companies that are locked in tax and non-tax disputes under different bilateral economic agreements that India has signed with various countries or trading blocks over the years.

This is because the Government is determined to defend meticulously its stance on retrotax and other disputes with foreign firms at arbitration tribunals and courts. On 20th January, 2016, Finance Ministry invited separate offers from international and domestic legal firms to represent the Government in disputes under 3 types of bilateral pacts.

These are: Bilateral Investment Treaty (BIT)/Bilateral investment promotion and protection agreements (BIPA), free trade agreements (FTAs), Comprehensive Economic Cooperation Agreements (CECAs)/Comprehensive Economic Partnership Agreement (CEPA) that India signed with certain countries or regional trading blocks over the years. FTAs, CEPAs and their ilk have an investment promotion chapter similar to standalone BIPA.

The Government is obviously trying to contain its monetary liabilities resulting from adverse compensation awards already delivered or expected to be given by international arbitration tribunals and courts.

The Government recently insulated itself from tax and certain other specified disputes with foreign companies under the new model text of BIT that was notified on 14th January 2016. This has, however, left the governance door a bit ajar for retrospective governance as we see in later in this column.

The new model BIT has specifically kept out of its ambit: "any measure by a local government and any law or measure regarding taxation, including measures taken to enforce taxation obligations." It also does not cover compulsory licensing of patented technology of foreign companies to domestic companies in public interest without violating World Trade Organization (WTO) agreement.

BIT can also not be invoked in case of disputes relating to Government procurement and subsidies.

In an apparent attempt to ensure consistency in BITs, the Finance Ministry has assumed key role in negotiations of future BITs. In an office memorandum to all ministries, it says: "Henceforth, Department of Economic Affairs (DEA) will lead all negotiations standalone BITs and investment chapters of CECAs/CEPAs/FTAs, along with representatives from the ministries/departments concerned, to ensure convergence between trade and investment issues."

The Government has avoided mentioning the words "retrospective", "retrospectively" in the notified Model BIT. This is in spite of specific advice given by Law Commission (LC) in its report captioned 'Analysis of the 2015 Draft Model Indian Bilateral Investment Treaty' submitted in August 2015.

LC observed: "Retrospective application of amendments also goes against principles of estoppel and legitimate expectations. International investment law also does not endorse retroactive application of amendments with respect to exercised rights, i.e. where an investor has initiated a claim. International law jurisprudence suggests that, once invoked, jurisdiction cannot be annulled by a subsequent 'extrinsic fact' such as amendment or termination of a treaty."

One of the specific changes proposed by LC in draft model BIT reads as: "It is suggested that Article 22, for consistency with international law and Article 2.5, may state that amendments will not apply retroactively for claims arising out of events which occurred, or claims raised, prior to the amendment's entry into force."

The new Government's silence on this advice shows that it lacks the courage of conviction on retrospective governance. Its credibility deficit among the foreign investors is thus bound to persist.

It, however, must be said to the credit of the Government it has tried to improve its credibility on the arbitration front as reflected in Arbitration and Conciliation (Amendment) Act, 2015, which was notified on 1st January 2016.

The amended law has streamlined the arbitration procedure, apart from specifying timelines for the Courts and arbitration tribunals for disposal of applications and cases.

As for empanelment of law firms, the Finance Ministry is expected to complete the bidding process for selection of domestic and foreign legal firms by May 2016. The empanelled international firms mandate would include representing Government in arbitration proceedings under UNICTRAL (Conciliation Rules of the United Nation's Agreement on International Trade Law) or International Centre for Settlement of Investment Disputes (ICSID).

Similarly, the empanelled domestic law firms' mandate would include providing advice to Government on legal issues arising from arbitration cases, drafting of legal documents and Government's compliance with all laws.

Both domestic and foreign law firms assigned specific cases would have to cooperate with each other to provide best services to the Government.

The significance of initiative to hire law firms can be appreciated by the fact that about 20 cases have been filed against India under different BIPAs, FTAs, etc. More cases are likely to crop up in the coming years as the clarity emerges from arbitration awards.

India has lost both the international arbitration awards delivered so far under BIPAs. These relate to deemed expropriation of foreign investment.

First came in 2011 when an international tribunal ordered the Government to pay Australian $9.81 million dollar to White Industries Australia Limited, a coal mining equipment supplier that ran into a contract dispute with Coal India Limited.

The 2 nd case outcome came in September 2015 when an international tribunal awarded $672 million compensation to Devas Multimedia following illegal termination of its satellite contract with Antrix Corporation, a Government enterprise controlled by Indian Space Department.

More big-ticket liabilities might devolve on Indian Government in the coming years when international arbitration tribunals give verdict on Cairn Energy, Vodafone and 2G telecom licence cancellation disputes.

Cairn Energy is exuding confidence at the prospects of favourable outcome of its international arbitration proceedings that started recently. The case relates to both retrospective taxation and attempts to expropriate its investments in India.

On 19th January, the company stated: "Cairn has a high level of confidence in its case under the UK-India Investment Treaty, and in addition to resolution of the retrospective tax dispute, its statement of claim to the arbitration panel will seek damages equal to the value of Cairn's residual shareholding in CIL at the time it was attached (approximately US$1 billion)."

It added: "In March 2015, Cairn UK Holdings Limited (CUHL) received a draft assessment order from the Indian Tax authorities in the amount of approximately US$1.6 billion plus interest and penalties, relating to the group's 2006 internal reorganisation prior to the IPO of CIL. The only material asset in CUHL is the group's residual shareholding in CIL currently valued at US$384m."

Similarly, UK-headquartered Vodafone Group is fighting retrospective tax dispute under Dutch-India Bilateral Investment Treaty and United Kingdom-India Bilateral Investment Treaty.

With so many arbitration cases in the pipeline, the BIPA legacy and shadow of retrospective governance is likely to blur somewhat its image as hot investment destination for foreign investment.

As put Vodafone Group Chief Executive Vittorio Colao in November 2015,"

It's (India is) a complicated country. It's a highly regulated country."

Mr. Colao is, however, optimistic about India's long-term prospects and the huge business opportunities that it offers.

Much depends on how Government reacts to arbitration outcomes in the coming years.