Bilateral Investment Promotion and Protection Agreement (BIPA)

With the opening up of the economies world over, each country has been trying to attract foreign capital through liberalised investment policies. In such a scenario, all investors are seeking those investment destinations which provide most protective, hospitable and profitable climate for their investments . Hence, many countries have entered into bilateral investment treaties or agreements which not only encourage capital flows into their own countries but also provide safe business environment for their own investors abroad.

Bilateral Investment Promotion and Protection Agreement (BIPA) is one such bilateral treaty which is defined as an agreement between two countries (or States) for the reciprocal encouragement, promotion and protection of investments in each other’s territories by the companies based in either country (or State). The purpose of these agreements is to create such conditions which are favourable for fostering greater investments by the investors of one country in the territory of the other country. Such agreements are beneficial for both the countries because they stimulate their business initiatives and thus enhance their prosperity.

Generally, these bilateral agreements have, by and large, standard elements and provide a legal basis for enforcing the rights of the investors in the countries involved. They give assurance to the investors that their foreign investments will be guaranteed fair and equitable treatment, full and constant legal security and dispute resolution through international mechanism.

With liberalisation of the foreign investment policy of India, the Government undertook negotiations with a number of countries and entered into Bilateral Investment Promotion & Protection Agreements (BIPAs) with them. This was done with a view to provide predictable investment climate to foreign investments in India as well as to protect Indian investments abroad. The Government of India has, so far, signed BIPAs with 62 countries out of which 50 BIPAs have already come into force and the remaining agreements are in the process of being enforced. In addition, agreements have also been finalised and/ or being negotiated with a number of other countries.

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The important features of the Bilateral Investment Promotion and Protection Agreements (BIPAs) signed by India are:-

  • The agreements apply to all investments made by the investors of each contracting party in the territory of the other contracting party in accordance with their laws and regulations.
  • Under the agreement, investment has been defined to include every kind of asset established or acquired together with changes in the form of such investments in accordance with the national laws of the contracting parties. In particular, it includes the following :-
    • Movable and immovable property as well as other rights such as mortgages, liens or pledges;
    • Shares in the stocks and debentures of a company and any other similar forms of participation in a company;
    • Rights to money or to any performance under the contract having a financial value;
    • Intellectual property rights, goodwill, technical processes and know how in accordance with the relevant laws of the respective contracting party;
    • Business concessions conferred by law or under contract, including concessions to search for and extract oil and other minerals.
  • Investments and returns of the investors of each contracting party shall at all times be accorded fair and equitable treatment in the territory of the other contracting party.
  • The agreements guarantee that the investments from the contracting parties shall receive treatment atleast as favourable as the treatment which the host country grants to investments by nationals and companies from any third State.
  • Each contracting party shall permit all funds of an investor of the other contracting party related to an investment in its territory to be freely transferred, without unreasonable delay and on a non-discriminatory basis. Such funds may include: –
    • Capital and additional capital amounts used to maintain and increase investments;
    • Net operating profits including dividends and interests in proportion to their share-holdings;
    • Repayments of any loan including interest thereon, relating to the investment;
    • Payment of royalties and service fees relating to the investment;
    • Proceeds from sales of their shares;
    • Proceeds received by investors in case of sale or partial sale or liquidation;
    • The earnings of citizens/nationals of one contracting party who work in connection with the investments in the territory of the other contracting party.

    All such transfers shall be permitted in the currency of the original investment at the current exchange rate prevailing in the market on the date of transfer.

  • The agreement contains elaborate provisions for resolution of disputes between the investor and a contracting party as well as between the contracting parties. In the former case, flexibility is provided for settlement of disputes either under the domestic laws or under international arbitration. In the latter case, if the dispute relates to interpretation or application of the agreement, it shall, as far as possible, be settled through negotiations. If it is not settled within 6 months from the time the dispute arose, it shall be submitted to an Arbitral Tribunal. The decision of the tribunal shall be binding on both the contracting parties.
  • The agreement shall initially be valid for a period of ten years and thereafter continue indefinitely unless either of the contracting parties give a written notice of its intention to terminate the agreement. The agreement shall stand terminated one year from the date of receipt of such a written notice. In the event of termination of the agreement, investments made prior to the termination will continue to enjoy the provisions of the agreement for a further period of 15 years.

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