The Bilateral Investment Agreement (BIA) between India and Israel, which seeks to promote and protect cross-border investments while significantly tightening the rules governing investor-state dispute settlement, comes into effect from July 4, 2026. The treaty requires investors to first pursue domestic legal remedies before approaching international arbitration and preserves both governments' right to regulate in areas such as taxation, public policy and national security.
Signed in New Delhi on September 8, 2025, the agreement replaces the earlier investment protection framework with a treaty aimed at creating a predictable and transparent investment environment for investors in both countries.
The agreement defines an investment as one that complies with the host country's laws and possesses characteristics such as commitment of capital, expectation of profit and assumption of risk. It limits treaty protection to investments made in accordance with domestic laws and excludes portfolio investments and speculative assets from the definition.
The BIA reaffirms the sovereign right of both countries to regulate investments in pursuit of legitimate policy objectives, including public health, environmental protection, taxation and national security. It also contains provisions preventing treaty shopping by denying treaty benefits to shell companies or investors that restructure solely to gain access to the agreement's dispute resolution mechanism.
The agreement contains a comprehensive tax carve-out, limiting the scope for investors to challenge tax measures through international arbitration. Except in cases involving allegations of expropriation, taxation measures are generally excluded from the treaty's dispute settlement mechanism. The treaty also requires investors to comply with all applicable tax laws, regulations and administrative guidelines of the host country.
On dispute settlement, investors must first seek to resolve disputes through consultations and are required to exhaust domestic legal remedies before initiating international arbitration. An investor must file a claim before the host country's courts or administrative authorities within one year of becoming aware of the disputed measure and the resulting loss. International arbitration can be initiated only after the domestic proceedings have concluded or after five years have elapsed, whichever is earlier. The agreement also lays down detailed eligibility criteria and disclosure requirements for arbitrators to ensure their independence and impartiality.
The BIA further bars arbitration where an investment has been made through fraud, corruption, money laundering or other illegal means. It also prevents arbitral tribunals from reviewing decisions of domestic courts, adjudicating pure contractual disputes or determining the legality of a government's actions under its domestic law. In addition, the treaty prohibits third-party funding of investor-state arbitration, a provision aimed at discouraging speculative claims.
The treaty includes a strong essential security exception, under which either government may take measures it considers necessary to protect its national security interests. Such decisions are expressly made non-justiciable, meaning arbitral tribunals cannot review a country's decision to invoke the security exception, even in compensation claims.
The agreement will come into force 30 days after both countries complete their respective domestic legal procedures. It will remain valid for an initial period of 10 years, after which it will continue until terminated by either party through a one-year written notice.
Importantly, investments made before termination will continue to enjoy treaty protection for another 10 years under a sunset clause.
The agreement was signed on behalf of India by Finance Minister Nirmala Sitharaman and her Israeli counterpart. In the event of any divergence in interpretation, the English text of the agreement will prevail.
