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Samir Malik*, M. Shahan Ulla**, Aryan Mehta***
Introduction
On 27th September 2024, India and Uzbekistan signed a Bilateral Investment Treaty (“the Uzbekistan BIT”) in Tashkent to bolster investment relations and create a more robust and resilient investment environment. This BIT has been in force since 15th May 2025, a culmination of trade relations that extend beyond bilateral trade and investments to defence and security cooperation, science and technology cooperation, education, and cultural cooperation. An interesting aspect of the Uzbekistan BIT is the inclusion of provisions for counterclaims, a rare occurrence globally, much less in Indian BITs. This paper analyses the Uzbekistan BIT, conducting a comparative analysis of material deviations from the Model BIT as well as more recent BITs signed by India which are in force. The paper first lays down the context of India-Uzbekistan investment relations, then moves to scrutinizing the Uzbekistan BIT, before finally discussing the provision for counterclaims, both in theory as well as the way they appear in the Uzbekistan BIT.
Background of India-Uzbekistan Investment Relations
India and Uzbekistan share a longstanding historical connection, with ties that trace back to ancient times. Following Uzbekistan’s independence, India was among the first nations to acknowledge its state sovereignty. Diplomatic relations were formally established with the signing of a protocol in Tashkent on 18 March 1992. The bilateral relationship was elevated to a Strategic Partnership in 2011, paving the way for a structured framework of dialogue at both political and official levels to facilitate regular engagement and monitor ongoing areas of cooperation.
In the realm of trade, India ranks among Uzbekistan’s top ten trading partners, with bilateral trade amounting to USD 756.60 million. India primarily exports pharmaceutical products, mechanical equipment, vehicle parts, services, frozen buffalo meat, optical instruments, and mobile phones to Uzbekistan. Conversely, India’s imports from Uzbekistan include fruit and vegetable products, services, fertilizers, juice products and extracts, and lubricants. In a move to deepen economic engagement, both countries signed a Joint Statement in September 2019 to initiate a joint feasibility study aimed at launching negotiations for a Preferential Trade Agreement (PTA). Additionally, a Bilateral Investment Treaty has been fully negotiated and is ready for signature.
The next stride forward in buttressing these relations is the BIT signed amongst the nations, which is the first investment treaty signed between the two nations. The BIT aims to provide appropriate protection to investors from both nations by boosting investor confidence through a minimum standard of treatment and non-discrimination, while providing for an independent forum for dispute settlement through arbitration.
2024 BIT
The Uzbekistan BIT is a culmination of continuous and improving bilateral relations. However, it must be placed in context of India’s variable approach to BITs. To better understand India’s approach, this section scrutinizes the BIT in context of India’s 2015 Model BIT (“Model BIT”) and the BITs signed by India since the publication of the Model BIT, particularly the new India-UAE BIT of 2024 (“UAE BIT”) which marked various deviations from the Model BIT.
Retracing Steps Towards the Model BIT
Despite significant existing investment relations, the Uzbekistan BIT provides protection only prospectively, from the date of entry into force (Art. 2.1). Although this is in line with common practice, India has previously made an exception for UAE where the UAE BIT upgraded the protection of those investments made before the BIT’s entry into force (Art. 2.1). This is exacerbated by the fact that UAE was allowed this benefit despite an existing BIT, yet the investments with Uzbekistan, which were devoid of any BIT’s protection even before, find no respite under the 2024 instrument.
One of the foremost deviations in the UAE BIT was the elimination of the criteria of “significance for development” as part of the definition of investment under Article 1.4. It marked a deviation from the Model BIT which incorporated the complete Salini Test laid down in Salini v. Morocco (Art. 1.4), requiring a transaction to demonstrate “Contribution,” “Duration,” “Risk” and “Economic Development” to qualify as an “Investment”’ under the treaty. The Salini Test, which was a commonly incorporated framework at the time, such as in the Southern African Development Community Model BIT of 2012 (Art. 2) and the Draft Pan-African Investment Code of 2016 (Art. 4.4),found no place in the UAE BIT, widening the scope of protection by removing a qualifier. However, this precursor to protection of investment has not been excused for Uzbekistan and is in line with other BITs signed by India in recent times with Belarus and Kyrgyzstan.
The definition in the Uzbekistan BIT of ‘Investment’ includes an open-ended provision for safeguarding “any other interests of the enterprise which involve substantial economic activity and out of which the enterprise derives significant financial value” which was expressly excluded from the UAE BIT (Art 1.4(h)). This open-ended definition provides wiggle room for investors to stretch the jurisdiction of the treaty to various financial undertakings. This is, however, curtailed significantly by the express exclusion of portfolio investments from this scope (Art. 1.4(i)), an exception not explicitly mentioned in the UAE BIT but found in the Model BIT (Art 1.4(1)). The explicit exclusion of portfolio investments is uncommon and can be found in only a limited number of BITs, such as Brazil’s 2015 Model BIT (Art. 1.3). By contrast, other Model BITs from the same era, such as those of Azerbaijan (2016), the United States (2012), and Serbia (2014) opt not to address the issue explicitly, neither affirming nor rejecting the inclusion of portfolio investments.
The treatment of investment, by contrast, excludes the Minimum Standard of Treatment as required under Customary International Law. The UAE BIT expressly states that an investor is entitled to full protection and security but not “in addition to or beyond that which is required by the customary international law regarding the Minimum Standard of Treatment of aliens” (Art. 4.2). This exclusion in the Uzbekistan BIT read with the wording of the UAE BIT does leave ambiguity regarding the Minimum Standard of Treatment being a ceiling or floor for protection of investment. While its express exclusion may be interpreted as a lack of obligation to provide such treatment its reading as a characterization of protection in the UAE could suggest, by contrast, the absence of such ceiling in the Uzbekistan BIT.
Similarly, in the UAE BIT investors were granted leniency while pursuing a satisfactory local remedy, with the temporal requirement being reduced to three years (Art. 17.1), as opposed to five years in the Model BIT (Art. 15.2). The Uzbekistan BIT, however, realigns its position with the Model BIT, which requires the investor to pursue a local remedy for five years from the date on which the investor first acquired knowledge of the measure in question, and only after the exhaustion of that period without a result satisfactory to the investor, can it then transmit a notice of dispute (Art. 17.2). The rule on the exhaustion of local remedies does not enjoy general applicability unless explicitly stipulated within the treaty itself. Even among existing BITs, such references are relatively rare, for example, Article 8.2 of the 2007 Albania-Lithuania BIT. Globally, investment treaties tend to adopt a multi-tiered dispute resolution mechanism that prioritizes amicable settlement efforts before arbitration can be initiated. In this context, the BIT imposes procedural burdens that go beyond the prevailing international trend, which has largely dispensed with the requirement to exhaust local remedies.
Even in the adjudication of claims, the BIT tilts judicial interpretation in the favour of States. It requires the adjudicator to interpret the conduct of the parties with a high level of deference that international law accords to States with regard to their development and implementation of domestic policies (Art. 25.1). The margin of appreciation is hence mandated to be large in the adjudication of such claims, further skewing the balance of power in favour of the host State.
It can therefore be observed that many of the favourable leniencies extended to the UAE were a result of its significantly greater negotiating power, rather than a consistent approach adopted by India across its BITs. On several aspects, the model BIT has been adopted. That said, the Uzbekistan BIT does not represent a standard-form agreement. It contains various modifications—some aligned with those made in the UAE BIT, and others that go even further.
Continuing Strides in the New Approach
The Uzbekistan BIT provides for a general stipulation that States have the power to undertake regulatory measures required to ensure that development in its territory is consistent with the goals and principles of sustainable development, and other legitimate social, economic, environmental or any other public policy objectives (Art. 3). This stipulation bars any claim arising out of such policy measures. However, this provision is qualified by certain conditions. Albeit absent from the Model BIT and present in the UAE BIT, it presents itself in a form that finds middle ground between the two. While this power under the UAE BIT remains largely untethered (Art. 3), in the Uzbekistan BIT, such measures must be in accordance with Customary International Law, non-discriminatory in nature, and be understood as embodied within a balance of the rights and obligations of Investors and Investments (Art. 3). The requirement in the UAE BIT, on the other hand, are more open ended, requiring only a legitimate public policy objective.
Another provision in the Uzbekistan BIT which has is not in the Model BIT is the express exclusion of third-party funding (Art. 16). The decision to explicitly ban third-party funding is significant, especially in light of a recent case where an investor obtained such funding in a dispute under the 1999 India-Australia BIT. This restriction highlights India’s growing intent to protect its position in international arbitration and to prevent possible imbalances that third-party funding could cause.
The issue of third-party funding in Investor-State Dispute Settlement (ISDS) has been flagged as a matter of concern by UNCITRAL Working Group III, particularly due to ethical implications such as the potential influence of funders on the arbitral process. In its deliberations, the Working Group has proposed various regulatory approaches; namely, prohibition, restriction, and permissive models. Although many BITs do not explicitly address third-party funding, a restrictive approach appears to be more common, allowing states to impose specific conditions on such arrangements. Notable examples include the 2019 EU-Vietnam Investment Protection Agreement (Art. 3.36), the 2019 Australia-Hong Kong Investment Agreement (Art. 24), and the 2019 United States-Mexico-Canada Agreement (Art. 14.D.5). Given this context, it will be worth observing whether the prohibition model gains broader acceptance among states concerned with the challenges posed by third-party funding in ISDS.
The Uzbekistan BIT incorporates some innovative provisions yet most of the provisions are largely reaffirmations of the more conservative elements of the Model BIT. Notably, one of the significant progressive developments is the express inclusion of a provision for counterclaims under Article 16. Both the substance of this provision and the broader significance of recognizing counterclaims within the framework of a BIT are examined in the following section.
The Provision for Counterclaim
Investment tribunals, ICSID, in particular, have observed an increase in the number of counterclaims filed in BIT proceedings. In response, both the host states in the Uzbekistan BIT presumably seek to clearly and explicitly delineate their authority to bring such counterclaims by including provisions concerning counterclaims.
The ability to bring counterclaims is an essential component of a respondent’s right to present its arguments on equal terms with the claimant, rooted in general legal principles and driven by considerations of fairness. It seeks to balance the asymmetry of the current investment regime where only investors, as claimants, have traditionally been empowered to initiate claims against host States for breaches of treaty obligations. States, on the other hand, are often left without an effective forum to raise their own claims of breach of treaty obligations. This structural imbalance not only limits the host State’s ability to seek redress but also undermines the principle of equality of arms and risks incentivizing opportunistic or irresponsible conduct by investors. International jurisprudence has affirmed that, even in the absence of explicit provisions authorizing counterclaims, arbitral tribunals possess an inherent jurisdiction to entertain them, thereby ensuring both parties have a fair chance to be heard while also promoting consistency in decision making and fostering procedural economy. In this context, it is important to note that despite a few decisions stating otherwise, the absence of treaty language on counterclaims, or the exclusive reference to an investor’s right to bring claims, does not by itself preclude a State from asserting counterclaims.
Nevertheless, the right to bring counterclaims is not without limitations. In addition to the inherent jurisdictional confines of a tribunal, a counterclaim must satisfy the well-established requirement of a “direct connection” to the principal claim—a standard recognized across domestic and international jurisdictions. It would be for the sole discretion of the court or tribunal to decide whether, given the circumstances of the case, the counterclaim is, in fact, sufficiently connected to the principal claim. This requirement serves to distinguish true counterclaims from unrelated cross-claims, and to prevent the conflation of mere defences with counterclaims aimed solely at dismissing the claimant’s primary legal action.
Furthermore, BITs are grounded in a fluid concept of consent, with States agreeing on stipulations, not investors, who may very well be the subject of such counterclaims. Accordingly, it is imperative that any counterclaim fall within the confines of the dispute brought forward by the investor, thereby preserving the tribunal’s jurisdictional competence. A valid counterclaim must thus constitute an independent yet responsive legal action by the respondent, asserting that the investor has breached obligations owed to the State, with the counterclaim maintaining a direct and substantive connection to the original claim.
In line with this, the inclusion of a counterclaims provision in the Uzbekistan BIT is not as radical as to newly confer upon States the right to bring such claims; rather, it represents a step towards explicitly delineating the scope of that right. Under the Uzbekistan BIT, the State may initiate counterclaims against the investor for a breach of its obligations under chapter II of the Treaty. Furthermore, the BIT also clarifies that any counterclaims initiated before the Tribunal would not act as a bar or operate as res judicata for the purposes of any legal, enforcement or regulatory action in accordance with the Laws of the Host Party or in any other proceedings before judicial bodies or institutions of the Host Party. The provision does away with the little ambiguity regarding the ability of states to file counterclaims, as well as clarifies the scope and confirms that such proceedings have no impact on any proceedings under domestic laws. The provision is hence not so much granting States a new power as explicitly delineating its contours.
Conclusion
Although the Uzbekistan BIT developed to enhance commercial relations, it adopts a more stringent approach than other recent treaties—such as the India–UAE BIT—and aligns more closely with India’s Model BIT. This reflects that, despite India’s efforts to strengthen bilateral investment ties, its approach remains tempered by a continued scepticism toward investment arbitration, likely shaped by high-profile disputes such as the Vodafone and Cairn Energy cases. Nevertheless, while much of the treaty reflects India’s cautious stance, it is not merely a replication of earlier instruments. Instead, it demonstrates a calibrated openness to progressive innovations—where regulatory priorities align and procedural safeguards are maintained in balance.
Article 16 includes counterclaims, a feature among the most prominent innovations. This is the first of its kind in India’s BIT practice. Likewise, they expressly prohibit third-party funding to preserve procedural integrity and reduce external influence on arbitral proceedings. This is representative of a proactive stance about a globally controversial issue.
Another example of this evolving approach lies in the regulatory autonomy clause, which permits States to undertake measures to pursue sustainable development and public welfare objectives. This power is, however, qualified in the Uzbekistan BIT by customary international law safeguards and non-discrimination requirements unlike the UAE BIT’s more open-ended version.
The India-Uzbekistan BIT, in its sum, reflects a treaty model that is not at all dogmatic or static. It signals India’s continued commitment for the purpose of preserving sovereign policy space while also engaging in contemporary reform discourses within international investment law. As future BITs unfold, this hybrid model with roots in calculated restraint, that is also willing to innovate, may well define India’s evolving treaty practice and influence broader trends in global investment governance.
*Samir Malik is a Partner at DSK Legal with over 15 years of experience in civil, commercial, and regulatory litigation, as well as arbitration. He has successfully led several groundbreaking and precedent-setting litigations in India.
**Mohammad Shahan Ulla is a Principal Associate at DSK Legal specializing in International Dispute Resolution. He holds an Advanced LLM in International Dispute Settlement and Arbitration from Universiteit Leiden.
***Aryan Mehta is an Associate in the Dispute Resolution team at DSK Legal, also based out of the firm’s New Delhi office. He earned his Bachelor of Laws degree from Jindal Global Law School.
