Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 and The Insolvency
and Bankruptcy Code (Second Amendment) Act, 2020 was passed by the government to
suspend the IBC proceeding under Section 7, 9, 10 of the IBC filed on or after
25th March 2020 in light of the problems faced by the companies and various
other sectors due to COVID-19 till 31st March 2021.
With this step, the government tried to support the companies adversely affected
by the COVID- 19 but this brings antithetical results on the foreign investors
that are parties to the Bilateral Investment Treaties (BITís) signed with India.
FDI is a source of income and it helps in boosting the economy of any country.
Foreign investors before investing in any country see the municipal law and
insolvency law of the country.
The investors would only be interested to invest in the country where the
country can assure the promotion and protection of their investments. The
government should boost the confidence and the sentiments of the investors as
this is a progressive step in a countryís overall economic development. But the
government by suspending the IBC proceeding forsaken the interest of the foreign
investors has violated the fair and equitable treatment clause of BITís by
restricting the right of investors to initiate insolvency proceedings.
Bilateral Investment In India
Bilateral investment Treaties are the treaties between two countries aimed at
protecting the investments made by the investors of both countries. BITís have
been the major drivers of the FDI inflows in India. FDI is a major source of
income in foreign currency and provides a major boost in an economy.
India has always been an attraction for foreign investment due to its
diversified market and low wage rate. However, the protection of the rights of
investors from arbitrary unilateral decisions in the country is an indispensable
factor for influencing the decision of investors investing in a country.
There have been a plethora of cases in which the penalty and compensation have
been imposed by the International dispute Settlement Tribunal against India.
Like in White Industries Australia Ltd v. The Republic of India
, it has
been ordered by the International Dispute Settlement Tribunal to pay 4.10 Aus
Dollar to White industries Australia Ltd under the Indo-Australia Bilateral
Investment Treaty of 1999 for not fulfilling its obligation of providing an
effecting means of ascertaining claims.
These piles of cases led to the review of BITís. The new Model of Bilateral
Investment Treaty (BITís) was introduced in 2016 which after due analysis show
that the new BIT is giving proper protection and security for the effective
assertion of the right of foreign investors. This step attracted a lot of
foreign investors to come and invest in India due to its
Suspension Of Ibc Proceeding & Bilateral Investment Treaty
A Bilateral Investment Treaty (BITís) is an agreement made for the purpose of
promotion & protection of the foreign investors and their investment so that to
promote and encourage cross border investments. As the country pushed into the
shackles of Covid-19, the government has to suspend the proceedings under
Section 7, 9 10 of the Insolvency and Bankruptcy Code to save the creditors
which have considerably restricted the rights of foreign investors.
Due to the suspension of the proceedings, there has been a violation of the
promises made by the Indian companies to the foreign investors before the
suspension of the IBC proceedings as they are not able to initiate proceeding
against India under BITíS for the breach of fair and equitable treatment.
The purpose of introducing IBC code was introduced for the purpose of increasing
foreign investment in India but by suspending it the government neglects the
interest of the investors especially the foreign investor and discouraged future
FDIís in India. This step created a negative image of India in the credit market
because if the investors will not be allowed to recover their debt in the host
country then Indiaís reputation will be deteriorated in the global market and
future investment will be discouraged.
Fair And Equitable Treatment
The government stands with great promises to the foreign investors by alluring
them through the ďFair and Equitable TreatmentĒ clause in the Bilateral
Investment Treaties (BITís). India has been ranked 63rd out of 190 countries in
the World Banks' Ease of Doing Business Index published in 2020 with respect to
142nd position in 2014. This was only possible due to the promises made to the
foreign investors through the alluring BITís.
But now by suspending the proceeding under the IBC code, they have become
insecure regarding their investments as the right to approach the court to
initiate insolvency proceeding is being restricted. This is violating the Fair
and Equitable treatment clause in the Bilateral Investment treaty with other
There have been cases where it has been alleged by the investors that their
rights are disrupted under this Fair and equitable treatment clause in the BIT
of India. Recently in an arbitration dispute between India and Cairn Energy Pvt.
Ltd., India lost the suit due to the violation of the Fair and equitable
Treatment clause in the BITís between the United Kingdom and India.
The Cairn Energy Pvt. Ltd. approached the Permanent arbitration dispute
redressal as India changed the tax laws in 2012 which is applicable from 1962
i.e. retrospectively. India has been asking for the tax from Cairn Energy Pvt.
Ltd. retrospectively and due to which it was challenged in the Arbitration.
Similarly is the case with the Vodafone Pvt. Ltd. where due to the BITís with
Netherland, the above decision was challenged on the FET clause mentioned in the
Bilateral Investment Treaty with Netherland. Both these cases are lost by India
due to the breach of the FET Clause.
Further, it was also held in Tťcnicas Medioambientales Tecmed, S.A. v. The
States that it is the duty of the state to adhere to the Fair
and Equitable Treatment clause and to the expectations of the foreign investors
as declared in Article II of the Agreement on the Reciprocal Promotion and
Protection of Investments which they agreed at the time of making the
A similar situation has now been arising with the suspension of the proceedings
under IBC as it is restricting the foreign investors in asserting their rights.
As we have discussed in the White industries v. the Republic of India
was quoted that:
India had not provided effective means of asserting its claims and enforcing
In counter-arguments, India argued that the suspension is only for a temporary
period and will not last forever but the tribunal held that although the
suspension is temporary but they cannot restrict the partner country investors
under the fair and equitable treatment clause to initiate insolvency proceeding.
The Government, although, making good efforts to promote Foreign Direct
Investments in India like Made in India initiative, Stand up India, Smart cities
mission and many more but when it comes to the new IBC ordinance 2020, the
government failed to attract foreign investors and bringing insecurities among
The important factor for an investor to invest in a country is their insolvency
law. When the main motive of this law is itself suspended then how the laws of
India would be able to attract FDI in India. Before taking the decision of
suspending the IBC proceeding, the government should have considered their
duties under BITís as it is already been seen that ignoring those duties will
lead to defeat in the various case in International tribunals Like we see in
dispute with Cairn Energy Pvt. Ltd., Vodafone and White Industries.
There is an immediate need to revisit the decision taken a long back and fulfil
its duties under BITís so as to minimize the loss that already happened to
India. By amending the Insolvency and Bankruptcy code, the government has
contradicted its own point of making India a 5 trillion dollar economy by means
of alluring more and more FDI in India. Before the suspension of IBC
proceedings, India was on its way to achieving a good reputation in the
international market as it was safeguarding the rights of investors but post-IBC
ordinance, it has started demotivating the investors and taking a decision that
is pernicious to them.
- Aayush Akar, National Law University Odisha
- Apoorv Bansal, Bharati Vidyapeeth Deemed University Pune