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

Mumbai: The government on Monday said that the bilateral investment treaty (BIT) signed between India and the UAE has been enforced from August 31 this year. While the model BIT requires investors to attempt to resolve disputes through India's legal system for at least five years before seeking international arbitration, the India-UAE BIT reduces the local remedies exhaustion period – the time period after which international arbitration can be sought by investors to three years from five years, giving investors quicker access to Investor-State Dispute Settlement (ISDS). The treaty, which is aimed at providing comfort to investors of both countries, would now include portfolio investments in a deviation from such treaties in the past.

The BIT signed and implemented between India and the UAE will provide investors in both countries the ability to get recourse in case they feel they haven’t got a fair deal and also raise investor confidence through a stable and predictable tax regime, Piyush Goyal, Minister of Commerce & Industry, Government of India told reporters after the 12th Meeting of the India-UAE High Level Joint Task Force on Investments.

However, according to the think tank Global Trade Research Initiative (GTRI) reducing the local remedies exhaustion period to three years weakens India's ability to resolve disputes internally, increasing the likelihood of cases being brought to international arbitration. GTRI Founder Ajay Srivastava said that this shift may lead to more frequent and costly arbitration proceedings, which could challenge India's regulatory decisions on a broader spectrum of investment issues.

“It signals a softer stance on the protection of sovereign decision-making compared to the Model BIT,” Srivastava said.

UAE is the seventh largest with a share of 3 per cent in the total Foreign Direct Investment (FDI) received in India, with a cumulative investment of about $ 19 billion from April 2000 to June 2024.

India also makes 5 per cent of its total Overseas Direct Investments in UAE to the tune of USD 15.26 billion from April 2000 to August 2024.

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.