A group of seven offshore banks have initiated formal arbitration proceedings against the Indian government under the bilateral investment treaties for its failure to protect their loans totalling $291 million to the Dabhol Power Project following the closure of the plant in 2001.

The banks incorporated in Austria, France, Switzerland, the Netherlands and the United Kingdom claim that the government had failed to comply with its international obligations under the investment treaties between these countries and India.

If the claims are upheld, India would be liable to pay compensation equal to the outstanding loans plus interest, default interest and expenses, a release issued by Dua

Associates on behalf of the offshore members of the Dabhol Steering Committee and other offshore lenders, said on Friday.

The claims arise out of "problems affecting the project and reflect the lack of progress by the government over the last three years to agree to a solution that recognises both the political nature of these problems and the rights of the offshore lenders", it said.

These claims can only be brought by lenders incorporated in countries that have investment treaties with India, but the claims are supported by the offshore members of the Dabhol Steering Committee, including Overseas Private Investment Corporation of the United States and five major international banks, it added.