India Unlikely To Make Major Changes To Dispute Resolution Rules For Foreign Firms: Sources

India is not planning major changes to its framework for resolving disputes involving foreign businesses, according to a government source familiar with the ongoing review of the country’s bilateral investment treaties.

The decision could disappoint overseas investors who had expected India’s review of its bilateral investment treaty framework, launched last year, to result in a significant easing of rules governing investment disputes.

Foreign companies operating in India have long raised concerns that disputes involving the government or government policies can take years to resolve, creating uncertainty and discouraging further investment.

Under India’s current framework, foreign investors are generally required to pursue local legal remedies before they can seek international arbitration. The existing model treaty provides for a five-year period before international arbitration can be initiated.

According to one government source, the requirement to first pursue local remedies will remain.

A second source said the five-year period could, however, be reduced, potentially to two years.

Both sources are government officials and requested anonymity because the details of the review are confidential.

The federal finance ministry did not respond to a request for comment.

Investors Seek Faster Dispute Resolution

Analysts said retaining the requirement could weigh on investor sentiment.

“Investors should have option to decide on moving to a local court or international arbitration, and how they want to resolve the dispute,” said Prabhash Ranjan, an academic and expert on bilateral investment treaties.

“If local remedies is insisted it should not be more than a year given the slowness in the Indian judicial system,” he added.

India is currently negotiating free trade agreements with at least eight countries or groups of countries, alongside separate negotiations on investment treaties.

Investment agreements with the UK and the European Union have also faced delays despite broader trade agreements with the two partners being concluded.

India Has Already Made Some Exceptions

In recent years, India has made some departures from its model bilateral investment treaty.

The investment treaty signed with the United Arab Emirates in 2024, as well as the treaty with Israel implemented this year, allows investors to seek international arbitration after three years rather than the standard five-year period.

A long-running dispute involving White Industries Australia, a now-defunct mining company, has also highlighted concerns over delays in India’s dispute-resolution process.

White Industries won an international arbitration dispute against state-owned Coal India involving bonuses and payments. The company then spent more than nine years pursuing enforcement of the arbitration award through Indian courts.

In 2011, an international tribunal, acting under the India-Australia investment treaty, ruled that the prolonged delay had breached India’s obligations under the treaty.

Taxation Remains A Red Line

India is also expected to maintain its position on taxation disputes.

The government will continue to keep taxation matters outside the scope of investment treaties and will not compromise on its sovereign right to impose taxes, the first source said, describing the issue as a “red line” for India.