India's Bilateral-Investment-Treaty Shift: Empowering States Through Counterclaims

On May 11, 2025, the complete text of the treaty between the Republic of India and the Republic of Uzbekistan was made available on the official repository of the United Nations Conference on Trade and Development.

The India-Uzbekistan BIT is the first bilateral investment treaty signed by India that allows the defending party — the host state — to initiate a counterclaim under Article 16 — a significant deviation from the Model India Bilateral Investment Treaty of 2015 as well as any other treaty with investment provisions that the government of India has executed.

Other than Article 16, there are minimal divergences in the India-Uzbekistan BIT from the Model Indian BIT. Article 16 of the India-Uzbekistan BIT constitutes perhaps the most significant facet of the latest BIT that India has executed.

Article 16.2 expressly authorises the submission of counterclaims by the host state against an investor or investment predicated upon alleged breaches of obligations set out under Chapter II of the India-Uzbekistan BIT before an arbitral tribunal, provided such submission occurs at any juncture during arbitral proceedings prior to the hearing on quantum. Such counterclaims may seek as a remedy appropriate declaratory relief, enforcement action or monetary compensation as remedies.

Further, Article 16.3 provides that a counterclaim under this Article shall not operate as res judicata against applicable legal, enforcement or regulatory action available under the laws of the host state or in any other proceedings before judicial bodies or institutions of the host state. Article 16.4 stipulates that the initiation of a counterclaim by a defending party shall not be construed as a waiver of that defending party’s objections regarding the arbitral tribunal’s jurisdiction over an investment dispute.

This is an uncommon provision in investment treaties, making it a notable addition to the India-Uzbekistan BIT. To the authors' knowledge, there are hardly any other BITs or international investment agreements, where the host state has the explicit right to maintain a counterclaim against an investor.

Having underscored the unique inclusion of Article 16 in the India-Uzbekistan BIT, it will be helpful to understand how tribunals have ruled on the host state’s counterclaims and their jurisdictional scope to admit the same in treaty arbitrations.

Article 46 of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States and Rule 48(1) of the ICSID Arbitration Rules, 2022 specifically provide that upon request of a party, and except as otherwise agreed between the parties, the arbitral tribunal will determine counterclaims that "arise directly out of the subject matter of the dispute" on the condition that the same are within the "scope of consent of the parties" and within the jurisdiction of International Centre for Settlement of Investment Disputes. Thus, one of the issues that the arbitral tribunal must determine is whether the parties consented to have the host state’s counterclaim arbitrated. This issue has been previously dealt by arbitral tribunals, which are discussed below.

In 2011, the tribunal in Spyridon Rousallis v. Romania had ruled on whether the parties consented to arbitrate a counterclaim filed by the host state in an investor dispute which arose out of the Greece-Romania BIT, 1997. The majority of the arbitral tribunal held that while consent to arbitration is enshrined in the Greece-Romania BIT, such consent did not explicitly include consent to arbitrate the host state’s counterclaims. The text of the dispute resolution clause in the Greece-Romania BIT only provided the investor with the right to raise claims and submit a dispute to arbitration. Mere reference to the ICSID rules in the Greece-Romania BIT did not automatically demonstrate consent to arbitrate counterclaims. The “scope of consent of the parties” needed to be determined by instruments external to the ICSID Convention.

The dissenting opinion though, noted that since the ICSID Convention allows for arbitrating counterclaims, the election of the ICSID rules is indicative of the parties’ consent to have a counterclaim arbitrated.

Since Rousallis, arbitral tribunals have grappled with two conflicting approaches regarding the issue of counterclaims by the host state.

In 2012, the arbitral tribunal in Antoine Goetz & Ors. v. Republic of Burundi (II) unanimously agreed with the dissenting opinion in Rousallis. The arbitral tribunal upheld its jurisdiction over counterclaims on the basis that the investor’s consent to ICSID rules is sufficient to imply consent to arbitrate the host state’s counterclaims without any requirement to locate additional consent in a BIT.

The arbitral tribunals have, however, largely returned to the approach taken by the majority in Rousallis. In 2015, the majority in Marco Gavazzi and Stefano Gavazzi v. Romania in a dispute submitted to ICSID pursuant to the Italy-Romania BIT, 1995 reiterated that the parties are bound by the letter of the BIT. If the wording of the BIT does not provide for jurisdiction over counterclaims, then the same cannot be inferred merely from the "spirit" of the BIT.

In 2016, in Urbaser S.A. v. The Argentine Republic, the arbitral tribunal had interpreted Article X of the Argentina-Spain BIT, 1991. Article X provided that disputes arising between a state and an investor of the other state in connection with the investments within the Argentina-Spain BIT "shall, as far as possible, be settled amicably between the parties to the dispute". The tribunal concluded that Article X is neutral as to the identity of the claimant or the respondent in an investment dispute arising between the parties. Consent of the parties was therefore not restricted, and Article X allowed the possibility of a state submitting a counterclaim.

Similarly, tribunals have relied on the language of the BIT to entertain counterclaims under the UNCITRAL Arbitration Rules. The current UNCITRAL Arbitration Rules 2021 provide for the respondent to file a counterclaim under Articles 21(3) and 21(4), read with Article 20. In Saluka Investments B.V. v. The Czech Republic, Saluka Investments had filed a claim under the Netherlands-Czech Republic BIT, 1991 against the Czech Republic in an arbitration applying the UNCITRAL Arbitration Rules 1976.

The arbitral tribunal had to decide on its jurisdiction over the Czech Republic’s counterclaim. Upon a reading of Article 8 of the Netherlands-Czech Republic BIT, the arbitral tribunal noted that its language refers to “all disputes” between a contracting state and an investor. Upon a conjoint reading of the BIT with the provisions on counterclaims in the UNCITRAL Arbitration Rules 1976, the tribunal in 2004 held that the language was wide enough to include counterclaims by the state and that Article 8 did not apply only to an investor’s’ claims.

These awards indicate that largely in investment treaty arbitrations, arbitral tribunals give greater importance to the text of the BIT.

In view of the past arbitral awards, it can be inferred that arbitral tribunals are likely to give primacy to the text of the India-Uzbekistan BIT, which could lead to interpretational ambiguity. This is because the language of Article 16.2 allows for filing counterclaims for breaches of “the obligations set out under Chapter II (or for breach of the object and purpose)” of the India-Uzbekistan BIT, which would be at risk of being construed widely to allow for expansive counterclaims, depending on the arbitral tribunals’ reading of the “object and purpose” of the India-Uzbekistan BIT.

Moreover, Article 16.3, by explicitly preserving the right to pursue legal or regulatory enforcement under domestic law, may result in overlapping litigation or regulatory actions that complicate the arbitral process. An investor may thus face an uncertain environment and may be forced to defend itself in multiple forums, even after opting for arbitration under the BIT. The dissenting arbitrator in Roussalis in his declaration against the majority cautioned against such inefficiency and duplication of proceedings wherein the respondent state gets to pursue its claims in its own courts, and the investor who had sought a neutral forum outside of state apparatus is constrained to defend such claims. Article 16.3 seems to introduce precisely this same inefficiency.

In any event, it is necessary to contextualize the inclusion of this provision within bilateral investment trends between India and Uzbekistan. As per data from the Department of Economic Affairs, total Indian overseas investments in Uzbekistan from April 2000 to April 2025 amounts to $71 million, out of which investments amounting to USD 53.4 million have been made in the last financial year.

On the other hand, under the fact sheet on country-wise foreign direct investment inflow statistics from April 2000 to April 2025 released by the Department for Promotion of Industry and Internal Trade, Uzbekistan does not even feature in its list of 174 countries from which India has received investments. It is thus currently unclear how advantageous the counterclaims provision in the India-Uzbekistan BIT will prove for the interests of the Indian state and its investors.

Reportedly, India is actively negotiating BITs with over a dozen countries, and one possible advantage is that similar clauses on counterclaims may be negotiated and incorporated in such future BITs/ investment agreements, particularly with more capital-exporting countries that account for the bulk of India’s foreign direct investments. This would provide India opportunities to assert counterclaims to safeguard its sovereign interests.

Traditionally, BITs may have been asymmetrical in nature, granting rights primarily to investors without reciprocal options to host states. The India-Uzbekistan BIT curiously departs from this approach and attempts to maintain a level-playing field. This establishes a substantive precedent that developing nations may adopt in their investment frameworks to achieve a more balanced dispute resolution system. Nonetheless, the text of Article 16 is still open to wide interpretation by future tribunals. It remains to be seen if the provision succeeds in bringing in efficiency and effectiveness.

Abhileen Chaturvedi is a partner, while Pramit Pandey and Kriti Jain are associates at Cyril Amarchand Mangaldas.

Disclaimer: The views expressed here are those of the authors and do not necessarily represent the views of NDTV Profit or its editorial team.