INDIA-UZBEKISTAN BIT ENTERS INTO FORCE

On 15 May 2025, Bilateral Investment Treaty between the Government of the Republic of India and the Government of Republic of Uzbekistan ('BIT') entered into force. The BIT has replaced the 1999 treaty terminated by the Republic of India eight years ago. How does the BIT protect Indian investments and investors in Uzbekistan and vice-versa?

PROTECTED INVESTMENTS

Unlike the majority of Uzbekistan's investment treaties, the BIT follows an 'enterprise-based' definition of investment. This means that only a legal entity or branch thereof 'constituted, organised and operated in good faith by an investor in accordance with the laws of the Party in whose territory the investment is made' is considered to be a protected investment (BIT, Art. 1.3-4).

Although the protections are generally extended to the enterprise's assets, e.g. debt instruments, the BIT does not only adopt the so-called Salini test, but also expressly exclude a wide-range of assets from the treaty's scope, e.g. 'any pre-operational expenditure relating to admission, establishment, acquisition or expansion of the enterprise incurred before the commencement of substantial business operations of the enterprise in the territory of the Party where the investment is made; claims to money that arise solely from commercial contracts for the sale of goods or services by a national or enterprise in the territory of a Party to an enterprise in the territory of another Party' (BIT, Art. 1.4).

PROTECTED INVESTORS

The personal scope of the BIT includes both natural persons and legal entities, 'other than a branch or representative office that has made investment in the territory of the other Party'. As it follows from the BIT's definition of an 'investor', natural persons and legal entities in the process of making the investment do not enjoy the treaty's benefits and protections. Indeed, the BIT does not cover the 'Pre-investment activity', i.e. 'any activities ... prior to the establishment of the investment' (BIT, Art. 1.9). As far as the investors-dual nationals are concerned, the BIT is one of the few investment treaties incorporating the 'dominant and effective nationality/citizenship' requirement (BIT, Art. 1.5).

It is also worth noting that only investors and investments that comply with the laws of the recepient State are considered to be protected investment. While the legality requirement can be found in a plethora of investmeent treaties, the BIT goes further and specifies investor's obligations. For instance, according to the BIT, Arts. 12-13, 'investors and their investments shall comply with the provisions of laws of the Parties concerning taxation, including timely payment of their tax liabilities', and 'shall endavour to voluntarily incorporate internationally recognized standards of corporate social responsibility'. Fail and you may not only fail to pass the ratione personae/materiae thereshold, but also be hit with a recepient State's counterclaim.

PROTECTIONS GUARANTEED

Fair & Equitable Treatment (FET) and Full Protection and Security (FPS)

Instead of including the much controversial unqualified FET clause in the BIT, India and Uzbekistan has agreed that protected investment shall not be subject to measures constituting 'a violation of customary international law, through: (i) denial of justice ... (ii) fundamental breach of due process; or targeted discrimination ... (iv) manifestly abusive treatment' (BIT, Art. 4.1). The FPS clause is also qualified. According to the BIT, the FPS only refers to the 'physical security of investors and to investments' under the laws of the recepient State (BIT, Art. 4.2). Finally, the BIT, Art. 4.3 requires an investor to establish the breach of the FET/FPS clauses per se as 'a breach of another provision ... or of a separate international agreement ... does not establish that there has been a breach' of those clause.

National Treatment (NT)

The BIT contains a qualified NT clause, guaranteeing treatment of investors and investments not 'less favourable ... than [a recepient State] accords, in like cirumstances, to its own investors or to investments'. To minimize broad and/or diverging interpretations of the 'like cirumstances' criterion, the Parties agreed that the tribunals need to consider the 'totality of cirumstances, including whether the relevant treatment distinguished between investors or investments on the basis of legitimate regulatory objectives' (BIT, Art. 5.1).

No Most-Favoured-Nation Treatment (MFN)

Given a number of quite peculiar provisions found in the BIT, it is unsuprising that there is no MFN clause.

Gurantees Against Expropriation

The treaty has very detailed provisions concerning expropriation. The BIT, Art. 6 addresses both direct and indirect expropriation, i.e. 'measures or series of measures of a Party ... subsnatially or permanently depriv[ing] the investor of the fundamental attributes of property in its investment', the compensation value and criteria for its assessement. Furthermore, the BITdirects the tribunal adjudicating an expropriation claim under the treaty to consider whwther the investor and/or its enterprise pursued action for remedies before the national courts or other tribunals.

Non-Precluded Measures and Exceptions

In addition to the quite broad public policy exception, the treaty has quite a few other carveouts, e.g. measures adopted by a local government, measures regarding taxation, government procurement, etc. (BIT, Art. 2.4). That written, an investor should carefully assess whether any disputed measures adopted by the recepient State is covered by the BIT before resorting to ISDS.

INVESTOR-STATE DISPUTE SETTLEMENT (ISDS)

Spanning across 19 articles, the BIT's ISDS provisions are indeed its crown jewel, which deserve a write-up of its own. In brief, the ISDS method chosen by the Parties is arbitration either in accordance with the ICSID Convention; ICSID Additional Facility Rules or UNCITRAL Arbitration Rules. However, the BIT seeks to regulate virtually every aspect of the arbitration thereunder: from inititiation of the arbitral proceedings and appointment of arbitrators and the scope of their jurisdiction and obligations, to the governing law; enforcement of awards and post-award remedies. The following provisions are particularly note-worthy:

• Art. 16 allowing the recepient State to submit a counterclaim for a breach of the treaty;

• Art. 17.2: inroducing a 5-year exhaustion of local remedies period;

• Art. 21.1 requiring the Parties to develop and adopt a conde of conduct for arbitrators under the BIT;

• Art. 26.1 binding the tribunals to apply joint interpretative statements by the Parties; and

• Art. 31 envisaging that the Parties may establish an appeal mechanism to review the awards.