Navigating India’s Regulatory Risks: How International Investment Treaties Protect Foreign Investors

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I. Introduction

Multinational companies are increasingly facing significant political and regulatory risks globally.  From India to Africa, Latin America to Southeast Asia, governments have implemented various regulatory changes that can be devastating to foreign investments, including environmental and health regulations, restrictions on mining or fossil fuel operations, and predatory tax burdens. Take India, for example, where foreign carmakers and beverage companies have been hit with tax demands over alleged import misclassifications – in some cases amounting to billions of dollars. In another set of cases, India enacted new e-waste recycling regulations that set an artificially high “floor” price for mandatory recycling certificates, threatening to raise investors’ environmental compliance costs by millions of dollars each year.  One foreign investor called these measures a “matter of life or death” for their operations in India.

What recourse do MNCs have against these regulations, apart from litigating in domestic courts?  One powerful tool is the use of international investment treaties.  With over 2,000 Bilateral Investment Treaties in force globally, plus numerous multilateral agreements with similar investment protections, companies often have options. Despite having terminated a number of its bilateral investment treaties, India still maintains investment treaties with countries like Singapore, South Korea, Japan, the UAE, Mauritius, and Belarus.  Many of these treaties provide substantive investment protections and–crucially—allow investors to bypass the local courts and bring claims directly against the host State before an international tribunal.  This approach can often be far more effective, with nearly 25% of disputes resolved during the mandatory “cooling-off” period before formal arbitration even begins.

This Alert highlights recent developments in India as a case study for how international investors can leverage investment treaties to protect their foreign investments, including by restructuring to gain access to the most advantageous treaties.

II. Recent Regulatory Challenges in India

A. The “Tax Terrorism” Phenomenon

India has a history of mistreating foreign investments, particular by levying retrospective taxes. The phenomenon called “tax terrorism” describes India’s ambiguously-written and arbitrarily-applied fiscal laws, that have left some foreign investors with a surprising and nasty tax bill, including interest and penalties.[1]  There is also a human factor at play:  as one expert bluntly put it, “[t]he guys [in the tax department] who raise [revenue] get a promotion”.[2] 

Vodafone and Cairn Energy (represented by Quinn Emanuel) brought India to international arbitration over retrospective tax measures imposed on alleged capital gains – and won.  Recently, India has accused foreign companies operating in India of evading import duties. Carmakers, liquor producers, and electronics manufactures have all been targeted with large tax demands.[3]  For example, in September 2024, India sought $1.4 billion in import duties from German automaker Volkswagen, allegedly for misclassifying auto parts imported into the country.  Volkswagen says the demand will have “catastrophic consequences” to its business.[4] 

Unfortunately, seeking relief through the Indian courts has often provide futile.  In one case from 2012, an Indian court rejected a Chinese phone maker’s petition, resulting in the  seizure of over $600 million in assets.[5]   

B. The New E-Waste Regulatory Regime

India’s new e-waste regime is another emerging issue faced by consumer electronics and appliance manufacturers.  India is the third-biggest e-waste generator behind China and the U.S.  In 2022, with the goal to tackle its growing e-waste problem, India issued E-Waste Management Rules that created an “extended producer responsibility framework.”[6]  This framework requires manufacturers of electrical and electronic equipment to purchase Extended Producer Responsibility (“EPR”) certificates, which show that electronic waste is recycled appropriately.[7]  In September 2024, the government followed up with Environmental Compensation Guidelines (“EC Guidelines”), which set the minimum EPR certificate prices as a function of the costs of collection, transportation, and processing of e-waste.[8]  The new rules mandate a minimum payment of 25 U.S. cents per kilogram to recycle consumer electronics.

However, manufacturers say that the price floors are many times higher than the actual cost of recycling—resulting in the quadrupling of e-waste compliance expenses.[9]  Some manufacturers have even claimed that the e-waste regulations are unconstitutional because they were created “with the ‘sole intention’ of providing financial gain to . . . recyclers, at others’ expense.”[10]  Samsung, LG and other electronics companies have challenged these regulations before the Delhi High Court.

III. How Investment Treaties Protect International Investors in India

Given these risks, foreign investors should explore all options to protect their investments. International investment treaties offer distinct advantages over domestic litigation, delivering both procedural safeguards and substantive protections.

A. Threshold Questions: Determining Whether An Investment Is Protected by Treaty

An investment treaty is an instrument signed between two States that protects the rights of an investor from one State located in the territory of the other State. A UAE investor with an investment in India, for example, may avail itself of protections under the India-UAE BIT.  To determine whether your investment in India qualifies for treaty protection, consider these threshold questions:

• Treaty Status: Is there a valid treaty between India and your home State?  India has a number of investment treaties or free trade agreements in force, for example, with Singapore, Korea, Japan, the UAE, and Mauritius. Even terminated treaties may still offer protection through “sunset clauses” that extend coverage for 10, 15, or 20 years after termination. The India-China BIT terminated in 2018, for example, remains effective in respect of investments made before the date of termination.[11]
• Investment Coverage: Does your asset qualify as a protected "investment" under the treaty?
  Definitions vary, but typically include tangible property, shares, intellectual property, and monetary claims. Some treaties impose additional requirements like minimum duration, risk assumption, or capital commitment. Many treaties also require that investments comply with host state laws to receive protection.
• Forum Requirements: Does the treaty contain procedural prerequisites? So-called "fork-in-the-road" clauses typically compel investors to choose between domestic litigation and international arbitration, though their interpretation can vary. For example, in 2019 an arbitral tribunal constituted under the India-Japan CEPA ruled that Nissan's domestic court claims before the Madras High Court did not run afoul of the treaty’s fork-in-the-road provision because they challenged the constitutionality of the tax measure at issue, but did not allege a breach of the CEPA itself.[12] Nevertheless, carefully consider your forum options, as domestic litigation may close the door to arbitration later.  In contrast, other treaties, like the 2018 India-Taiwan BIA, require exhausting local legal remedies before pursuing international arbitration.  These jurisdictional considerations can make or make your case.
  
  B. Substantive Protections Under Investment Treaties

Once an investment is covered by a valid treaty, investors can benefit from various substantive protections, which typically include: 

• Fair and Equitable Treatment (“FET”): This cornerstone protection shields investors from unfair, arbitrary, or discriminatory treatment. Actionable violations include denial of due process, frustration of legitimate expectations, harassment, regulatory instability, lack of transparency, and discriminatory treatment.  Some newer treaties, however, may offer only more limited, or “qualified,” FET, such as the India-Korea CEPA, which defines FET as no greater than the minimum standard of treatment under customary international law.
• Expropriation: Almost all treaties protect against unlawful government takings, whether direct (ie., by seizure) or indirect (ie, through regulatory measures that effectively deprive investors of control or benefits). In one landmark case, Mauritius-based investors secured a $562 million award against India after proving that contract annulment constituted unlawful expropriation under the India-Mauritius Bilateral Investment Promotion and Protection Agreement.[13]
  Most Favored Nation (“MFN”) Treatment: Many investment treaties require that investors of certain states are afforded treatment no less favorable than that accorded to investors of other states. Note MFN clauses often contain exceptions; for example, it is common for MFN treatment to not apply to tax measures.
• National Treatment (“NT”): In most investment treaties, the host state must accord foreign investors treatment no less favorable than is accorded domestic investors. Much like MFN clauses, NT clauses are often subject to carve-outs—especially in the areas of taxation, subsidies, or government benefits.
• Full Protection and Security (“FPS”): This protection guarantees that states provide investors and their investments with physical safety. FPS typically applies to the physical protection and security of the investor and investment, but it may also extend commercial or legal protection of investments.  Like FET, FPS may be restricted in scope.  For example, the India-Korea CEPA limits the scope of FPS to only those protections afforded under the minimum standard of treatment pursuant to customary international law.

IV. Dispute Resolution Under Investment Treaties

Investment treaties offered structured procedures for resolving investment disputes:   

A. The “Cooling-Off” Period: An Opportunity for Confidential Settlement

Nearly all investment treaties include a mandatory “cooling-off” period during which an investor must confidentially notify the host state of a dispute before initiating formal proceedings. By some accounts, nearly 25% of disputes are settled in this period.[14]  To initiate this process,  an investor usually provides written notification of dispute to the host state, which opens  the channels for negotiation.

B. International Arbitration: Procedural Advantages over Domestic Litigation

If negotiation is unsuccessful, investors may file an arbitration demand.  Arbitration can take place via ad-hoc tribunals under the United Nations Commission on International Trade Law, under the auspices of an international arbitration institution like the World Bank’s International Centre for Settlement of Investment Disputes (“ICSID”), or through private arbitral institutions like the International Chamber of Commerce.  Cases are heard by a neutral panel of arbitrators agreed upon by the parties (or, alternatively, appointed by the arbitral institution).  Arbitral tribunals have the authority to make jurisdictional and merits rulings, and issue enforceable awards. 

International arbitration offers several procedural advantages over domestic litigation:

• Neutrality: ISDS arbitrators are third-party neutrals who are not subject to the political pressures of the host state.
• Confidentiality: Unlike in national courts, ISDS hearings, settlements, and awards may be protected by confidentiality provisions.
• Expertise: The parties may agree on arbitrators who are experts in the subject matter of the dispute, unlike domestic judges who may be generalists.
• Enforceability: Ad hoc arbitral awards are enforceable in over 170 countries pursuant to the New York Convention, and ICSID awards are enforceable in over 150 Member States, helping ensure that judgments can be collected upon through assets located in different jurisdictions.

V. Conclusion

India exemplifies the global trend toward increasing regulatory risks for foreign investors. The challenges discussed in this Alert—aggressive tax enforcement and burdensome e-waste compliance requirements—represent just two examples of the political risks that investors face today. International investment treaties provide valuable protection against these challenges by establishing substantive rights and offering access to neutral dispute resolution mechanisms.

Proactive steps investors should consider include:

1. Assessing whether existing investments are protected by active treaties or sunset clauses
2. Structuring new investments to maximize treaty protection
3. Documenting government assurances and regulatory frameworks at the time of investment
4. Consulting with experienced counsel before the dispute escalates

***

If you have any questions about the issues addressed in this memorandum, or if you would like a copy of any of the materials mentioned in it, please do not hesitate to reach out to:

Rajat Rana
Email: rajatrana@quinnemanuel.com
Phone: +1 212-849-7000

John Rhie
Email: johnrhie@quinnemanuel.com 
Phone: +852 3464 5602

Mark McNeill
Email: markmcneill@quinnemanuel.com
Phone: +1 212-849-7351

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[1]   Chris Kay et al., ‘A Law Unto Itself’: India’s Tax Service Targets Multinationals, Financial Times (Apr. 17, 2025) https://www.ft.com/content/984a5c9a-27c1-42f0-9c72-208f08b2023d.

[2]   Id.

[3]   Arpan Chaturvedi & Aditya Kalra, India Says Quashing Volkswagen’s $1.4 Billion Tax Bill Would Be “Catastrophic”, Reuters (Mar. 23, 2025), https://www.reuters.com/world/india/india-says-quashing-volkswagens-14-billion-tax-bill-would-be-catastrophic-2025-03-23.

[4]   Id.

[5]   Aditya Kalra, India Court Rejects Xiaomi’s Challenge to $676 Million Asset Freeze, Reuters (Apr. 21, 2023), https://www.reuters.com/technology/india-court-rejects-xiaomis-challenge-676-mln-asset-freeze-live-law-2023-04-21.

[6]   See E-Waste (Management) Rules, 2022, G.S.R. 801(E), Ministry of Environment, Forest, and Climate Change (Nov. 2, 2022), https://cpcb.nic.in/uploads/Projects/E-Waste/e-waste_rules_2022.pdf.

[7]   See id., Ch. VI.

[8]   Environmental Compensation (EC) Guidelines under E-Waste (Management) Rules, 2022 (“EC Guidelines”), File No.: CP-22/31/2024-WM-III-HO-CPCB-HO, Central Pollution Control Board (Sept. 9, 2024) https://cpcb.nic.in/openpdffile.php?id=TGF0ZXN0RmlsZS80MjBfMTcyNTg4MzY3N19tZWRpYXBob3RvMzM0OC5wZGY=.

[9]   Aditya Kalra & Arpan Chaturvedi, From Daikin to Samsung, Companies Fight Modi over E-Waste Policy, Reuters (Apr. 11, 2025), https://www.reuters.com/world/india/daikin-samsung-companies-fight-modi-over-e-waste-policy-2025-04-11.

[10]   Kalra & Chapurvedi, From Daikin to Samsung; EC Guidelines § 2.0.

[11]   Sanjeev K. Kapoor, Investment Treaty Arbitration: India, Global Arbitration Review (July 8, 2024) https://globalarbitrationreview.com/insight/know-how/investment-treaty-arbitration/report/india.

[12]   Jarrod Hepburn, Nissan v. India: Previously-Unseen Jurisdictional Decision Reveals Tribunal’s Rejection of Objections on Tribunal Constitution, Fork-in-the-Road, Contractual Forum Selection Clause, Time-Bar, and Taxation Exception, Investment Arbitration Reporter (Sept. 13, 2019) https://www.iareporter.com/articles/nissan-v-india-previously-unseen-jurisdictional-decision-reveals-tribunals-rejection-of-objections-on-tribunal-constitution-fork-in-the-road-contractual-forum-selection-clause-time-bar.

[13]   Gladwin Isaac, PCA Tribunal Holds India Liable for Unlawful Expropriation and FET Breach Under India-Mauritius BIPA, Investment Treaty News (Oct. 17, 2018), https://www.iisd.org/itn/2018/10/17/pca-tribunal-holds-india-liable-for-unlawful-expropriation-and-fet-breach-under-india-mauritius-bipa-gladwin-issac.

[14]   Danilo Di Bella, Theorizing the Cooling-Off Provision as an Additional Standard of Investment Protection, Utrecht J. of Int’l & Eur. L., Vol. 36, Issue 1 (Mar. 10, 2021) https://utrechtjournal.org/articles/10.5334/ujiel.523.