India Cuts Local Remedies Exhaustion Period to 3 Years for UAE Investors

India Reduces Exhaustion Period for Local Remedies to 2 Years for UAE Investors Under New BIT

India has reduced the exhaustion period for local remedies for UAE investors to two years from five years under the Bilateral Investment Treaty (BIT) between the two countries that came into effect in August. Aimed at comforting investors from both countries, the deal also includes portfolio investments, a departure from such deals in the past.

Exhaustion of local remedies means that investors should first try to resolve their disputes using the host country’s legal system before taking the matter to international arbitration.

The agreement signed between India and the UAE in February will come into effect from August 31 this year, a finance ministry statement said.

“Investor-State Dispute Settlement (ISTS) mediation will mandate the exhaustion of local remedies for three years,” the finance ministry said in a statement.

Model PIT requires investors to try to resolve disputes through India’s legal system for at least five years before seeking international arbitration.

Unlike India’s model PIT, which excludes portfolio investments such as stocks and bonds, the India-UAE PIT includes them as protected investments.

It expands the scope of the agreement to allow investors holding passive fund shares to use the ISDS mechanism.

“Some of the salient features of the India-UAE BIT 2024 are the closed asset-based definition of investment with coverage of portfolio investment.” It said.

According to the Global Trade Research Initiative (GTRI), this shift away from the Model PIT’s focus on long-term investments that do not contribute significantly to economic growth increases India’s exposure to disputes over financial instruments.

Country Model BIT focuses only on direct investments, excluding portfolio investments.
As the previous Bilateral Investment Promotion and Protection Agreement (BIPPA) between India and the UAE signed in December 2013 expired on September 12 this year, the implementation of this agreement with the UAE provides continued investment protection to investors from both countries, the ministry said.

Other important aspects of the treaty include provisions on conduct of investment with an obligation not to deny justice, fundamental violations of due process, targeted discrimination and manifestly unfair or arbitrary treatment.

This includes scope carved out for activities such as taxation, local government, government procurement, grants or subsidies and compulsory licensing; Investors do not claim if investments are involved in corruption, fraud, round tripping.

However, a balance is maintained with respect to the state right to regulate and thereby provide adequate policy space while providing investor and investment protection.

This agreement provides protection against expropriation of investments. Transparency, transfers and compensation for losses.

The UAE is the seventh largest with a total investment of around USD 19 billion from April 2000-June 2024 and a share of 3 per cent of the total foreign direct investment (FDI) received in India.
India made 5 percent of its total foreign direct investments in the UAE from April 2000-August 2024 to USD 15.26 billion. The India-UAE BID is expected to increase the comfort level of investors and boost investor confidence by ensuring a minimum standard of treatment and non-discrimination while providing an independent forum for dispute resolution through arbitration.

“This agreement is expected to increase bilateral investments and benefit businesses and economies in both countries.”

A free trade agreement between the two nations was put into force on May 1, 2021.

An agreement to increase investor trust in both India and Uzbekistan was struck last month.

Such settlements are crucial as India had before lost two international arbitration disputes against British telco Vodafone and England’s Cairn Energy Plc.