India reduces arbitration time for foreign investors in deal with UAE
Piyush Goyal, Union Minister of Commerce and Industry
India has reduced the period during which foreign investors can seek international arbitration from five to three years as part of the recently signed investment pact with the United Arab Emirates (UAE), a departure from the model Bilateral Investment Treaty (BIT).
If the Indian legal system fails to resolve a dispute within this shortened period, investors can resort to international arbitration under the Investor-State Dispute Settlement (ISDS) mechanism.
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The investment pact, signed on February 13 in Abu Dhabi, came into force on August 31 and replaced the previous pact.
India’s new deal includes stocks and bonds as protected investments, unlike the model BIT, which provides protection to foreign direct investment (FDI) and excludes portfolio investments such as stocks and bonds.
The India-UAE BIT will boost investor confidence, provide a predictable and stable tax regime and help investors seek redress if they feel they have not gotten a fair deal, Union Minister of State for Commerce and Industry Piyush Goyal said. Monday.
“In the various issues we discussed today (Monday), some of our Indian companies feel that there are some issues with the UAE and some UAE companies may also have issues with India. BIT will help provide a framework for both sides to resolve these issues,” Goyal told reporters after attending the 12th Meeting of the Joint High-Level Task Force on High-Level Investment between India and the UAE along with Sheikh Hamed bin Zayed Al Nahyan had chaired. director of Abu Dhabi Investment Authority (ADIA).
However, experts believe that shortening the deadline could weaken India’s ability to resolve disputes internally and increase the chances of international arbitration.
According to Delhi-based think tank Global Trade Research Initiative (GTRI), while the BIT increases investment from the UAE, it also increases the risk of higher arbitration claims against India. Moreover, India will soon be approached by other countries to sign BITs on similarly liberal terms as the country negotiates BITs with countries like the United Kingdom (UK) and trading blocs like the European Union.
The GTRI said the inclusion of stocks and bonds as protected investments broadens the scope of the treaty, allowing investors with passive financial assets to access the ISDS mechanism. “This shift increases India’s exposure to disputes over financial instruments, even those that do not contribute significantly to economic development, and deviates from Model BIT’s focus on long-term investments,” the report said.
In an official announcement about the pact, the Finance Ministry on Monday said that India-UAE BIT was expected to boost investor confidence by ensuring a minimum standard of treatment and non-discrimination while providing an ‘independent forum’ for dispute resolution through through arbitration.
“While providing investor and investment protection, the balance has been maintained regarding the state’s right to regulate, leaving sufficient policy space,” the report said.
With 3 percent of total foreign direct investment inflows, the UAE is India’s seventh largest source of foreign investment, contributing approximately $19 billion between April 2000 and June 2024. India, in turn, has 5 percent of its total foreign investment in the UAE. , which amounted to $15.26 billion between April 2000 and August 2024.
BITs enable mutual promotion and protection of investments: protection of foreign investors in India and Indian investors abroad. Such pacts increase investor confidence and are intended to encourage foreign investment.
First publication: Oct 8, 2024 | 12:08 pm IST