Ishita Mishra, Presidency University, Bengaluru

Jyotsana Singh, CNLU Patna

Editor: Masoom Israney, Middlesex University Dubai


International Economic Law is divided into three main parts, with International Investment Law being one of the most vital parts. Having vast ambit, it deals with the relationship between foreign investors and the sovereign states (which includes foreign direct investments). There have been several bilateral investment treaties (BITs) signed, which essentially serve as contracts between the foreign investors and the governments regarding the necessary agreements and domestic laws. The treaty is an agreement between two countries containing reciprocal undertaking for the promotion and protection of private investments. The fundamental issue with this branch of law is the absence of a specific governing institution and the lack of a codified set of principles regarding international investment law. With the increase in foreign investments by private foreign individuals in sovereign states, multiple disputes have occurred. Once the disputes concerning international investments arise, an appropriate jurisdiction must be searched and decided upon to resolve the various issues. This is a major problem which needs to be addressed. This article deals with the procedure for dispute resolution and jurisdictional issues of international investments.

Disputes Settlement

Since every commercial relation is subject to further disputes, international foreign investments come with the possibility of conflicts. On various occasions, non-performance of the duties or any violation of the treaty, contract, or domestic law leads to the dispute. Foreign investors have the right to sue the host state. The most effective mechanism for dispute settlement is the provision of International Arbitration. Usually, the investment treaties or agreements have the arbitration clause, which is agreed upon by both parties. In international arbitration, an independent arbitrator is chosen who listens to both parties and makes a decision accordingly. Each party appoints one arbitrator, who then select a third arbitrator, so that, even in cases of deadlock, the matter could be easily resolved. The third arbitrator presides over the arbitral tribunal. The dispute is heard by an ad-hoc tribunal of arbitration. Arbitrations are traditionally confidential unless parties decide otherwise. The remedy is generally monetary compensation or the performance of the contract by the losing party.

The decision of the arbitrator shall be final in such cases. But a permanent body, i.e., International Centre for Settlement of Investment Disputes (ICSID), has also been constituted to reconcile the disputes between the foreign investors in 1966. It is governed by the administrative council, which is chaired by the President of the World Bank Group. However, no action can be taken without any authority here. It has to be chosen by the parties, or the matter has to be referred to ICSID through other institutions. ICSID currently has 163 member states. However, India has never been a member of ICSID, since they and many other countries choose to follow their respective domestic laws and provisions of bilateral treaties to solve their international investment disputes. The International Court of Arbitration, The International Chamber of Commerce, The Stockholm Chamber of Commerce are some of the other institutions which act as arbitrators in case of an international investment dispute.


Countries either follow arbitration rules of the ICSID Convention Rules or UN Commission on International Trade Law (UNICITRAL) rules or any other convention, such as a bilateral or multilateral treaty. But in every procedure, the jurisdiction of an arbitral tribunal is supposed to be accepted by both parties. However, today there are many cases in which parties deny the competence of a tribunal and contend various reasons, for example, the investor himself not belonging to a particular nationality or non-fulfilment of procedural formalities. These challenges relating to the jurisdiction create yet another problem for this un-codified field of international law.


The sources of International Investment Law are-

1. Investment Treaties: According to the 2019 world investment record, there are 2932 BITs and 385 TIPs. The first BIT was concluded between Germany and Pakistan in 1959 to protect foreign investments.

2. ICSID Convention: The Convention on the Settlement of Investment Disputes between States and nationals of other states came into force in 1966. It is a multilateral treaty providing a procedural framework for dispute settlement.

3. Customary International Law: Although international investment law is a universe of treaties, Article 31 of the Vienna Convention on the Law of Treaties applies, so that any relevant rules of International Law applicable to the relations between the parties shall be interpreted along with the investment treaty.

4. General Principles of Law: It refers to universal principles of fairness and justice recognized by civilised legal systems around the world, such as good faith and unbiased judgment


Developing countries, in particular, invite foreign investments because it helps in improving the economy. Consequently, sometimes the rules and laws for citizens are more stringent than for foreign investors. This is one of the major issues leading to disputes related to foreign investments.

Indian Position

In 1991, India adopted the policies of liberalization, privatization, and globalization and then chose to invite Foreign Direct Investments. Factors such as the availability of raw material, cheap wage workers, a huge market capacity, and less stringent norms made foreign investors realise the scope of setting up a profitable business in India. Additionally, the newly independent Indian nation considered FDIs an opportunity to enhance economic growth, which ultimately did benefit the country. But gradually, several conflicting issues arose between India and foreign investors. In case of such disputes, dispute settlement occurs through Bilateral Investment Treaty's (BITs).

India signed its first BIT with the United Kingdom in 1994 to invite more foreign investments. India is a member of four of the five constituents of the World Bank Group, the fifth constituent being ICSID, which India did not sign, as previously mentioned. With India's economy becoming a preferred destination for foreign investment and its role changing from merely being a capital importing country to becoming a capital-exporting country, there is an enhanced focus on investment treaty protections and the dispute resolution mechanisms used therein.

India has recently revised its Foreign Direct Investment policies to avoid possibilities of predatory foreign investment, which would seek to exploit the financial distress of COVID-19 hit Indian companies. Any investment from a country sharing its border with India can proceed only after government approval. China’s business in India is under a serious threat due to this change. Chinese companies have invested in more than half of the Indian start-ups (valuing up to $1 billion approximately), and the total investment would be much more. China, as a counter step, has withheld further investments. FDI's and policies related to them are crucial for sovereign states as well as foreign investors.


The disputes dealt with under International Investment Law can be complicated, and having a separate central and specific treaty can help overcome the various difficulties. Since there is no particular set of rules to follow, dispute settlement and providing remedies for the same becomes an enormous and immensely stressful task. In the near future, the number of international investment disputes would undoubtedly increase as a result of the growing foreign investment between countries. In order to face the situation, a systematic mechanism for dispute resolution needs to be set up in an effective manner, and the rules for execution of tribunals should be made more stringent.

97 views0 comments

Recent Posts

See All

©2020 by JURIS COGNITIONIS. Proudly created with