India-UAE BIT 2024: A Measured Approach

India and the UAE signed a bilateral investment treaty (BIT) on 13 February 2024, which came into force on 31 August 2024. This has been hailed as a significant step to strengthen economic cooperation between the two States by creating a more robust and resilient investment environment and preserving the policy space necessary for the States' right to regulate. The India-UAE BIT fulfils the promise in Article 12.1 of the Comprehensive Economic Partnership Agreement between the two States to replace their 2013 Bilateral Investment Promotion and Protection Agreement (BIPPA). Pertinently, India had also notified the UAE as a reciprocating territory for the purposes of enforcement of UAE court judgments in 2020 (under India's Code of Civil Procedure, 1908), and similarly, the UAE through article 222 of its Federal Decree Law No. 42 of 2022, provided that foreign judgments and orders can be executed in the UAE under similar conditions as those applied by the foreign country for UAE judgments.

In this post, we highlight the key provisions of the India-UAE BIT.

India's recent approach to BITs

India adopted its new Model BIT (Model BIT) in 2016 following a number of investor-state dispute settlement (ISDS) claims against the country. The new Model BIT reportedly aimed to (1) balance investment protection with the host state’s right to regulate and (2) make the treaty provisions more precise to reduce textual indeterminacy and arbitral discretion. Thereafter, India issued notices terminating 68 out of its 74 BITs with the intention to renegotiate them on better terms. Since then, India has signed BITs with Brazil (2020), Belarus (2018), Kyrgyzstan (2019), the Taipei Economic and Cultural Center in India (2018), and Uzbekistan (2024). Other than the India-Brazil treaty, these are all based on the Model BIT (the India-Uzbekistan BIT, signed in September 2024, is not yet public).

Key provisions of the India-UAE BIT

Definition of Investment

The India-UAE BIT contains a closed enterprise-based definition of the term ‘investment’, which covers portfolio investments, but excludes pre-investment activities from its ambit. It only covers investments made “in accordance with the applicable laws and regulations” of the country in which the investment is made, after obtaining "the necessary approvals in the relevant economic sector."

Additionally, an investment must involve a “commitment of capital or other resources, the expectation of gain or profit and the assumption of risk.” This reflects in the text of the treaty aspects of the well-known Salini criteria.

This definition of investment is also aligned with India's Model BIT which moved away from a broad asset-based definition of investment to an enterprise-based definition.

The BIT expressly excludes from its protective ambit investments concerning concessions to "search for, explore, extract, or exploit natural resources" [Article 1.4(A)(f)]. This is consistent with typical definitions of investment in UAE BITs [see for instance, Article 9(g) of the Turkey-UAE BIT 2023]. However, interestingly, renewables are excluded from the definition of "natural resources” in the India-UAE BIT, and hence, disputes concerning renewables could become the subject matter for claims under it.

Application and Scope

Article 2 of the India-UAE BIT provides that the treaty applies to measures taken by the Government and “Sub-national Government,” which includes the state government and administration of union territories in India. In the UAE, this includes measures taken by each of the seven Emirates or any of its authorities when power is delegated to them.

Article 3 of the India-UAE BIT expressly reaffirms the treaty parties' right to regulate in pursuit of “legitimate public policy objectives” which include (but are not limited to) the “protection of environment, health and safety”. The India-UAE BIT does not incorporate any independent fair and equitable treatment standard but provides specific provisions in Article 4 which prohibit measures resulting in denial of justice, fundamental breach of due process, targeted discrimination and manifestly abusive or arbitrary treatment.

Article 2.4(ii) of the India-UAE BIT, which adopts the language of the Model BIT, creates a detailed scope carve-out for measures related to taxation, stating that the host state's decision, either before or after the commencement of arbitration proceedings, that any alleged conduct is a subject matter of taxation, shall be nonjusticiable. India has historically been party to several disputes involving taxation measures such as Vedanta Resources v. India, Cairn v. India, and Vodafone v. India.

As well as a number of other carve-outs, the India-UAE BIT excludes the potential for any investor claim to be brought in relation to measures taken on a non-discriminatory basis for: 

1. protecting public morals and maintaining public order; 
2. protecting human, animal or plant life and health; 
3. ensuring compliance with laws which are not inconsistent with the BIT; 
4. protecting and conserving the environment; 
5. protecting national treasures or monuments of artistic or historical value; 
6. measures taken by central bank or monetary authorities for monetary or exchange rate policies. 

Article 34 provides for safeguarding "essential security interests". This is similar to the taxation carve-out as it notes that if a state party decides that the alleged conduct is for the protection of an essential security interest then that conduct is non-justiciable, and it shall not be open to a tribunal constituted under the treaty to review any such decision. India has asserted this defence in several cases historically including Deutsche Telecom v. India and CC/Devas v. India.

Preconditions to a Claim for Arbitration

Under the Model BIT, it is mandatory for an investor to first resort to local remedies under the host state's domestic legal system for five years prior to resorting to international arbitration. This requirement has been reduced to three years under the India-UAE BIT. The treaty also contains quite detailed dispute resolution provisions. 

Third Party Funding

Article 16 of the BIT expressly excludes third-party funding for investors in case of disputes.

Conclusion

The India-UAE BIT is a very interesting development, signalling both countries' continued commitment to investment promotion and protection through the conclusion of bilateral treaties. It contains detailed provisions designed to clarify and refine the traditional protections, as well as innovative measures building on India's Model BIT. The provisions, including the coverage of portfolio investments and the reduction in the time period for exhaustion of local remedies, all signal efforts by the two states to achieve an investor-friendly environment, while also balancing the interests of the state, in an investment corridor that continues to grow in significance.

The authors would like to thank Anupriya Dhonchak for her contribution to this post.