India-UAE BIT 2024: What To Expect When You're Investing

On 31 August 2024, a new bilateral investment treaty ("BIT") came into force between the Republic of India ("India") and the United Arab Emirates ("UAE") (the "2024 BIT"). The 2024 BIT finds middle ground between its predecessor, the 2014 India-UAE BIT, which was less detailed and more broad in the scope of its application, and the 2015 India Model BIT which advocates for a more restrictive approach overall.

With effect from 31 August 2024, the 2014 India-UAE BIT ceased to have effect. Claims arising on or before 31 August 2024 that had not already been brought under the 2014 BIT were required to be initiated by no later than 31 January 2025, after which they would be time-barred. The 2024 BIT expressly carves out claims arising "out of events which occurred, or claims which have been raised prior to the entry into force" of the treaty from its scope of protection.

Accordingly, barring claims that were initiated, and are already underway under the 2014 BIT, the 2024 BIT is the only instrument governing investor and investment protection between India and UAE today. It will remain the only relevant instrument until at least 31 August 2034 unless India and UAE agree to an earlier termination. However, even in such a situation, investments made prior to the effective date of termination of the 2024 BIT would continue to enjoy the treaty's protection for another 10 years.

Accordingly, it is important that investors from either country who have invested and/or are seeking to invest in the territory of the other country are aware of the key features of the 2024 BIT. This article, written from that perspective, provides an overview of the 2024 BIT's qualifying criteria and the reciprocal rights and obligations of investors and states.

What investments are protected by the 2024 BIT?

Article 1.4 of the 2024 BIT defines the types of investments that are protected by the BIT. Article 1.4 states that eligible investments must be compliant with the laws of the host state and exhibit certain "characteristics": the commitment of capital or other resources, the expectation of gain or profit, and the assumption of risk. While the language of Article 1.4 suggests that this list of characteristics is not exhaustive, it is clear that, at a minimum, to qualify as an investment for the purposes of the 2024 BIT, these characteristics must be fulfilled.

For greater clarity, Article 1.4 also provides an exhaustive list of the categories of investments that are covered and a list of assets that will not be covered by the 2024 BIT. Importantly, portfolio investments are expressly included (Articles 1.4B and 1.4C), while concession contracts related to non-renewable energy sources are expressly excluded (Article 1.4A(f)) from the scope of protected investments.

Which categories of investors are protected by the 2024 BIT?

Article 1.5 of the 2024 BIT states that natural or juridical persons of one country, other than branch or representative offices, that have made a covered investment in the other country shall be deemed as eligible investors.

In relation to natural persons, Article 1.9 clarifies that an individual holding dual nationality or citizenship is are, for the purposes of the 2024 BIT, to be deemed an exclusive national or citizen of the country of ordinary residence. Thus, Indian or UAE nationals or citizens holding nationalities or citizenships with a third-party country can seek the protection of the BIT if they can prove that they ordinarily reside in either India or UAE. Given that India does not allow dual citizenships, in reality, this provision only applies to dual citizens or nationals of the UAE.

In relation to legal persons, Article 1.5 covers entities – including trusts and beneficiaries of trusts – that are owned or controlled by federal or state governments, entities with substantial business activity in the home state, and entities that are owned or controlled by either of the other two categories. A footnote to Article 1.5 explains that substantial business activity is to be determined on a case-by-case basis by examining several relevant circumstances such as the tenure of physical presence in the home state, location of central administration of the entity, number of employees in the home state, the payment of taxes in the home state, and generation of revenue in the home state.

Are there any limits to the scope of the 2024 BIT's protection?

Articles 2.1 and 2.3 of the 2024 BIT explain that investments made prior to 31 August 2024 will also obtain the protection of the 2024 BIT provided that the claims arise out of events that occurred after this date. Importantly, however, pre-investment activities and measures related to such activities which continue to apply post-investment are not granted protection under the 2024 BIT (Article 2.2).

Article 2.4 also lays out matters that are not covered by the 2024 BIT, including measures regarding taxation, subsidies, and grants.

The 2024 BIT also specifies circumstances under which its protections will not be available:

• Where the investor fails to comply with the laws, regulations, administrative guidelines, and policies of the host state (Article 12(i));
• Where it is determined with finality that an investment was made through fraud, fraudulent misrepresentation, corruption, concealment, money laundering, round-tripping, or other similar proceedings (Article 14);
• Where the investor or investment is, or comes to be, owned or controlled by a legal or natural person of a non-party or of the host state (Article 36.1(i));
• Where there is evidence of treaty shopping – for example, when the investment or investor appears to have been established or restructured with the primary purpose of gaining protection under the 2024 BIT (Article 36.1(ii));
• Where a legal or natural person from a country sharing a land border with India holds a beneficial interest in the investor or investment or an entity through which the investment is routed (Articles 36.2 and 36.3);
• Where the host state adopts, on a non-discriminatory basis, measures of general applicability to protect public morals and public order; human, animal or plant life or health; the environment, including natural resources; and national treasures or monuments (Article 33.1);
• Where the host state adopts, on a non-discriminatory basis, measures of general applicability to ensure compliance with laws (Article 33.1);
• Where the host state's central monetary authority adopts, on a non-discriminatory basis, measures of general applicability related to monetary and credit policy and exchange rate policy (Article 33.2);
• Where the host state uses exchange actions in conformity with the International Monetary Fund's articles of association (Article 33.3); and
• Where the host state adopts measures it considers necessary for the protections of its essential security interests (Article 34).

What are the states' obligations to protected investors and investments?

The 2024 BIT contains most of the standard investment protections contained in BITs, including:

• fair and equitable treatment (limited to protecting against a denial of justice, breach of due process, targeted discrimination on grounds such as gender, race, or religion, or manifestly abusive or arbitrary treatment) (Article 4.1);
• full protection and security (limited to guaranteeing the minimum standard of physical security required by customary international law) (Article 4.2);
• national treatment (Article 5);
• protection against unlawful expropriation (Article 6);
• free transfer of funds (Article 7); and
• free entry and stay of personnel of the home state in the host state for engaging in activity connected to the investment (Article 10).

The most-favoured-nation provision (which requires that the host state treat investors and/or investments no less favourably than their treatment of investors and/or investments of other states) is, however, noticeably absent.

It should be noted, however, that the 2024 BIT curtails the protections offered on the basis of legitimate policy and regulatory objectives. Article 3 specifically reaffirms that both India and UAE hold the right to regulate in pursuit of legitimate public policy objectives and that a negative effect of such regulation on an investment or an investor's expectations will not constitute a breach of the protections offered. Thus, for example, treatment taken in the pursuit of legitimate policy objectives cannot be manifestly arbitrary (Article 4.1). Similarly, differential treatment of investors and investments for legitimate regulatory objectives will not be a breach of the national treatment provision (Article 5). So too, non-discriminatory measures by a state or its judicial bodies intended to protect legitimate public-interest or public-purpose objectives will not constitute expropriation (Article 6.5).

What reciprocal obligations do protected investors and investments hold?

The 2024 BIT introduces both binding (Article 12) and non-binding (Article 13) obligations on the investor.

The investor must:

• comply with the host state's laws;
• not offer, promise, or give any undue bribe to a public servant of the host state to obtain an advantage before or after the establishment of the investment;
• comply with the tax laws of both the host and home state; and
• provide information concerning the investment, as required by the laws of both the host and home state.

The investor is encouraged to incorporate internationally recognised standards of corporate social responsibility in the internal policies and practices of the investment.

What remedies does an investor have in case its rights under the 2024 BIT are breached?

Disputes between an investor and a host state, excluding those arising out of a breach of an obligation related to the free entry and sojourn of personnel or the host state's failure to publish its laws adequately, must be submitted to arbitration. However, arbitration cannot be commenced until certain preceding conditions are met (Article 17):

• The investor must have initiated available local remedies within one year of the date on which the investor acquired, or should have acquired, knowledge of the measures in question and the resultant loss or damage incurred. However, this requirement will not apply if the investor can demonstrate that there are no available local remedies;
• The investor must have pursued these local remedies for three years or until the local remedies are exhausted, whichever is earlier;
• The investor must have transmitted a notice of dispute to the host state detailing, amongst other things, the factual and legal bases of the claim and the approximate value of the relief being claimed;
• For at least six months following receipt of the notice of dispute, the parties must have attempted to resolve the dispute amicably through a third-party procedure;
• The investor must have submitted a notice of intent to submit arbitration (which can be transmitted concurrently to the settlement efforts) in the prescribed format to the host state at least 90 days before commencing arbitration;
• The investor must have waived the rights to initiate or continue any locally available remedies; and
• The investor must have initiated the arbitration within 12 months of the conclusion of the local proceedings, and within five years from the date on which the investor acquired, or should have acquired, knowledge of the measures in question and the resultant loss or damage incurred.

Arbitration can then be commenced under the arbitration rules of the ICSID Convention (which would apply where the host state is the UAE), the Additional Facility Rules of ICSID (which would apply where the host state is India), or the UNCITRAL Arbitration Rules. The applicable arbitration rules are modified and supplemented by the provisions of the 2024 BIT related to the conduct of proceedings (Articles 20-29).

Investors should also be aware of the following features of the 2024 BIT's provisions relating to investor-state arbitration:

• Parallel proceedings on the same claim under different agreements will not be entertained (Article 15);
• Third-party funding of the investor is prohibited (Article 16);
• Parallel proceedings on the same claim cannot be brought by different entities with indirect or direct interest in the investment (Articles 17.4(iv) and (v));
• Written submissions, hearings, and awards can be made public (Article 24); and
• Incidental and consequential damages (including for future profits and assets), punitive or moral damages, and any injunctive relief can neither be sought nor awarded (Articles 27.3 and 27.4).

While the 2024 BIT makes clear that awards issued under the treaty are enforceable in accordance with the New York Convention (Articles 22.1, 28.4, and 28.5), it is worth noting that this guarantee is still subject to the enforcement regime of both countries. As India only applies the New York Convention to awards issued in the territory of another country it deems to be a reciprocating territory by formal Gazette notification, and the UAE is currently not such a territory, there may still be complications in the enforcement of a UAE-seated award in India under the 2024 BIT.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.