Report No. 260
C. Article 6. Transfers (Monetary Transfer Provisions)
(i) Analysis and comment:
3.3.1 A foreign investor would like to have as much freedom as possible in transferring funds in and out of the Host State for a number of business-related needs, like repatriating profits or servicing debts. On the other hand, transfer of funds in and out of the Host State could impact the host country's capital account and balance of payments (BoP).40 In order to mitigate the adverse impacts of inflow and outflow of funds, countries at times impose capital-flow management measures (CFM measures).41
In simple terms, CFM measures refer to controls adopted by the Host State to regulate inflow and outflow of funds, which is widely recognised as an integral component of a country's monetary sovereignty, which is crucial for responding to various macroeconomic challenges.42 From the point of view of the Host State's regulatory power, countries will like to have as much freedom as possible in imposing CFM measures.
40 For more discussion on this see Kenneth J Vandevelde, Bilateral Investment Treaties, Oxford University Press, 2010, p 316.
41 This term is borrowed from Kristin Forbes and others, 'Capital Controls and Macroprudential Measures: What are they Good For?', Discussion Paper 1343, DIW Berlin, 2013, available at:
42 For more on capital controls, see IMF, The Liberalization and Management of Capital Flows: An Institutional View, 14 November 2012, available at:
3.3.2 This brings the interests of foreign investors and the regulatory power of Host States face to face. Monetary Transfer Provisions (MTPs) in BITs regulate the transfer of funds related to investment in and out of the host country.43 The manner in which interests of foreign investors will be balanced with interests of Host States depends on the formulation of MTPs in BITs.
43 Kenneth J Vandevelde, Bilateral Investment Treaties, Oxford University Press, 2010, p 316-33; J Salacuse, The Law of Investment Treaties, Oxford University Press, 2010, 256-71.
3.3.3 Many existing Indian stand-alone BITs provide an unqualified right to foreign investors to transfer 'all funds related to investment', i.e., the MTPs in these stand-alone BITs do not subject investor's right to transfer funds to any exceptions.44
44 See India-Germany BIT Article 7; India-Denmark BIT Article 7; India-Turkmenistan BIT Article 7; India-Netherlands BIT Article 7; India-Tajikistan BIT Article 7; India-Poland BIT Article 7; India-Sri Lanka Article 7; India-Vietnam BIT Article 7; India-Austria BIT Article 6.
3.3.4 Yet, domestic Indian law allows the imposition of CFM measures, including capital controls.45 Also, even under the IMF Articles, India retains the right to impose restrictions on capital account transactions.46 Thus, the relevant question from the perspective of India's regulatory power is whether a foreign investor can successfully pursue a claim for MTP violation against India if this investor is prohibited to freely transfer capital abroad?
India may argue that despite the MTP in the BIT, that customary international law and treaty norms (such as the IMF Articles) that recognise the right of countries to impose capital controls in situations of balance of payment crisis, should be read into the BIT.47 On the other hand, a foreign investor may argue that the BIT is lexspecialis vis-à-vis the IMF Articles and should therefore trump. Peter Muchlinski, 'Trends in International Investment Agreements: Balancing Investors Right and the Right to Regulate:
The Issue of National Security' Yearbook of International Investment Law and Policy, 2009, volume 1, p 60. See also Continental Casualty v Argentina, ICSID Case No ARB/03/9, Award, 5 September 2008, paras 243-44 Given the lack of precedent, it is not clear how an ITA tribunal would resolve this question. Thus, the formulation of MTPs in stand-alone BITs points to the wide discretion that an ITA tribunal will enjoy in balancing investment protection with India's regulatory power in the area of capital controls.
45 See Foreign Exchange Management Act 1999 (India) ss 6(2)(b) and 6(3), (a)-(j).
46 IMF, 'India Cannot Impose Restrictions on Current Account Transactions After it Became an Article VIII Member Country in 1994', IMF Country Report No 11/50, February 2011, available at:
Also see Articles of Agreement of the International Monetary Fund, adopted 22 July 1944, entered into force 27 December 1945, art VI(3), available at:
47 Alejandro Turyn and Facundo Perez Aznar, 'Drawing the Limits of Free Transfer Provision' in Michael Waibel and others (eds), The Backlash Against Investment Arbitration, Kluwer, 2010, p 51.
3.3.5 The 2015 Model recognises the investor's right to transfer all funds related to investment such as contributions to capital, profits, dividends, interest payments, etc. (Article 6.1). However, the investor's right to transfer funds is subject to three restrictions. First, Article 6.1 subjects the transfer of funds to the domestic laws of the Host State. Second, Article 6.3 provides that 'nothing in this treaty shall prevent' the good faith application, by the Host State, of its laws, including actions relating to bankruptcy, insolvency, compliance with judicial decisions, labour obligations and laws on taxation, etc.
Third, Article 6.4 provides that the Host State may temporarily restrict the investor's right to transfer funds in the event of serious BoP difficulties or in situations where movement of capital could cause or threaten to cause 'serious difficulties of macroeconomic management'.
3.3.6 The same exception for serious BoP difficulties and external financial difficulties is found in the general exceptions, Article 16 of the 2015 draft Model BIT (discussed later in this Report). This will allow India to deviate from all substantive obligations (including MTPs) in order to remedy serious BoP problems, exchange-rate difficulties and external financial difficulties. The general exception clause is self-judging.49
This might encourage the Host State to invoke the general exception clause in order to remedy BoP difficulties and not invoke the defence given in Article 6.4 discussed before. This tilts the balance towards the Host State's regulatory power. Thus, it is suggested that should delete the provision of remedying BoP related difficulties in Article 16 since it is already covered in Article 6.
49 Self-judging means that the clause in the BIT grants discretion to States to deviate unilaterally from their BIT obligation to protect 'security interests' based on their assessment. See further Stephan Schill and Robyn Briese, 'If the State Considers: Self-Judging Clauses in International Dispute Settlement', Max Planck Yearbook of United Nations Law, 2009, volume 13, p 61.