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1.1 INTRODUCTION

Foreign investment means capital flows from one country to another country, it

allows the capital owning enterprise and individuals form a country to invest ina foreign country. In the era of globalization foreign investment plays a key

role in expanding production and profitability. Foreign investors are usually

large corporations, who may be interested in cheaper production, labor or lower

taxes. Foreign investments are of two types direct and indirect. In direct

investment the Foreign company buys plants, operates machinery, construct

hotels etc., the company retains the management control of the investment, it is

considered a long-term investment and attractive to the foreign company. In

Indirect Investment the Foreign Company usually partners with a local

company buy buying shares or financing, though the local company still retains

the control. Its not as popular as the former.

!he "egal framework of foreign investments is governed by international

investment agreements #II$s% augmented by rules of international law. &ost

II$'s protect foreign investment with treaty based standards and a mechanisim

which provides for investor state-arbitration. in case of any wrongdoing by the

state !hese standards allow investors to to enforce their rights against the host.(

!he most common form of this treaty is the bilateral investment treaty#BIT%

establishes the terms and conditions for the investment by nationals or

companies of one state in another state. the advantage of the )I!'* is,instead of

relying on the domestic legal system of the host they have a provision for

alternative dispute resolution, which allows the violated investor to start

arbitration proceedings against the host state , usually under the auspices of the

IC*I+ Convention. !he state too can use this mechanisim in case the investor

fails to uphold his obligations.

( Law and Practice of Investment Treaties Newcombe

httpswww.law.cornell.eduwexbilateral/investment/treaty #as accesesd on0d 1uly 2(3%

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)I!'* usually contain provisions on expropraitions, they seek to protect the

rights of the investor as well as the rights of the soveriegn state to safegaurd its

interests. 4xpropriation is of two types "awful and 5nlawful.

"awful 4xpropriation is permitted if it takes place for a public purpose, with

due process and fully compensated at the fair market value. !he fair market

value is the value that the investment would have fetched in the commercial

market at the time of the expropriation.

5nlawful 4xpropriation is when the state fails to comply with the treaty

r6uirements, for which it is re6uired to make reparations, but this is rarelyclaimed as its diffcult to enforce awards against the state. Instead tribunals

award damages.

!he IC*I+ Convention is a treaty ratified by (70 Contracting *tates. It entered

into force on 8ctober (9, (:33. IC*I+ Convention is a multilateral treaty

formulated by the ;orld )ank to promote international investment. IC*I+

provides for settlement of disputes by conciliation, arbitration or fact-finding. 8nce a dispute is brought to it IC*+ appoints an independent $rbitral

!ribunal which decides after hearing evidence and legal arguments from the

parties. !he $ward is enforceable under $rticle 70#(% of the Convention.