India cuts local remedies exhaustion period to 3 yrs for UAE investors

PTI New Delhi: India has cut down by two years the local remedies exhaustion period for UAE investors from five years under the Bilateral Investment Treaty (BIT), which came into effect between the two countries in August. The treaty, which is aimed at providing comfort to investors of both countries, also includes portfolio investments in a deviation from such treaties in the past. Local remedies exhaustion means that investors must first try to resolve their disputes using the legal system of the host country before they can take the matter to international arbitration.

The treaty signed between India and the UAE in February has been enforced from August 31 this year, a finance ministry statement said. "Investor-State Dispute Settlement (ISDS) through arbitration with mandatory exhaustion of local remedies for three years," the finance ministry said in a statement. The Model BIT requires investors to attempt resolving disputes through India's legal system for at least five years before seeking international arbitration. Unlike India's Model BIT, which excludes portfolio investments such as stocks and bonds, the India-UAE BIT has included them as protected investments. This broadens the scope of the treaty, allowing investors with passive financial holdings to use the ISDS mechanism.

"Some of the key features of the India-UAE BIT 2024 are closed asset-based definition of investment with coverage of portfolio investment," it said. According to think tank Global Trade Research Initiative (GTRI), this shift increases India's exposure to disputes over financial instruments, even those that don't contribute significantly to economic development, moving away from the Model BIT's focus on long-term investments. The country's Model BIT excludes portfolio investments, focusing only on direct investments.

The ministry said enforcement of this pact with the UAE gives continuity of investment protection to investors of both countries, as the earlier Bilateral Investment Promotion and Protection Agreement (BIPPA) between India and the UAE signed in December 2013 expired on September 12 this year. The other key features of the pact included provisions such as treatment of investment with obligation for no denial of justice, no fundamental breach of due process, no targeted discrimination and no manifestly abusive or arbitrary treatment.