The most significant inclusions proposed in draft model BIT from the foreign investors' standpoint are: inclusion of government's procurement, Most Favoured Nation (MFN) clause and provision to challenge legal issues settled by Indian courts.

LC released on 27th August 77-page report on 2015 draft model BIT which was released by Finance Ministry in April for public comment.

As regards Governmental purchases, LC observes that Article 2.6(i) of the draft model treaty excludes government procurement from treaty protection.

It says: "However, foreign investors enter a country through the government procurement process, for example, through infrastructure projects. Excluding public procurement could lead to the exclusion of many activities that would otherwise meet treaty objectives of contributing substantially to the Host State's development (as provided in the test for ‘real and substantial business operations'). Absence of treaty protection could lead to an exodus of foreign investors which may not be desirable in the long term."

LC has thus recommended deletion of Article 2.6(i) from draft BIT. Similarly, it has recommended removal of Article 2.6(iv).

LC says: "Article 2.6(iv) excludes taxation measures from the purview of the treaty. However, including taxation measures here is not necessary, and may, in fact, suggest an anti-investor bias. The power to tax is an integral part of the State's police powers in international law. The power to tax exists independent of a treaty, unless the tax itself is arbitrarily imposed to destroy the State's regulatory freedom. The absence of this clause will not affect India's taxing power."

As for MFN, the report notes that the draft model BIT does not contain an MFN provision. The Government has not provided any detailed explanation for its absence.

As put by LC, "It appears that the purpose behind not having an MFN provision is to ensure that foreign investors are not able to borrow beneficial provisions from other Indian BITs (Treaty Shopping). India's major concern with the MFN is the use of this provision by foreign investors to borrow beneficial substantive and procedural provisions from third-country BITs."

It points out that in the MFN absence, foreign investors will be exposed to the risk of discriminatory treatment by the Host State in application of domestic measures.

It says: "Thus, absence of an MFN provision does not balance investment protection with regulation. In order to achieve this balance, India could consider having an MFN provision whose scope is restricted to the application of domestic measures. This will ensure non-discriminatory treatment to foreign investor, and, at the same time, will not allow a foreign investor to indulge in ‘treaty shopping'."

As regard dispute settlement through international arbitration, LC has pointed out that draft model BIT provides for only ad-hoc international arbitration.

The Draft avoids reference to other fora like International Centre for Settlement of Investment Disputes (ICSID) (for States that are parties to ICSID), as well as the ICSID Additional Facility, which could be used to bring a claim against States that are not party to the ICSID.

According to the report, "Even though India is not a party to ICSID, reference to these alternate dispute resolution methods might benefit Indian investors abroad seeking to bring a claim against other States. Thus, by limiting the forum for dispute resolution, the 2015 Model might deny available remedies to Indian investors abroad."

The draft BIT's Articles 14.2(ii)(a) and (b) preclude an International Arbitration Tribunal's jurisdiction to review ‘any legal issue which has been finally settled by any judicial authority of the Host State' and the merits of a decision made by a judicial authority of the State. This appears to have been introduced to ensure that the tribunal does not sit on appeal over the decisions of Indian Courts.

Noting that this provision renders the entire BIT unworkable, LC says: "Article 14.2(ii)(a) is problematic to the extent that it precludes the re-examining of any legal issue that has been decided by a judicial authority. Thus, itis suggested that Article 14.2.(ii)(a) be removed. However Article 14.2(ii)(b) is in consonance with ordinarily accepted tribunal jurisdictions, where tribunals are precluded from reconsidering the merits of a matter and are limited to considering it within the context of treaty protections."

The report says that revised preamble to model BIT should provide for India's and the other signatory country's right to adopt laws for the protection of environment, human health and labour standards.