What the India-UAE Bilateral Investment Treaty protects for a UAE investor in India, and what it leaves out

The India-United Arab Emirates (UAE) Bilateral Investment Treaty (BIT), signed at Abu Dhabi on 13 February 2024 and in force from 31 August 2024, protects a UAE investor's enterprise-based investment in India against denial of justice, fundamental breach of due process, targeted discrimination, manifestly abusive treatment and uncompensated expropriation. It has no fair and equitable treatment clause, and it excludes taxation, procurement and municipal measures. A claimant must pursue local remedies first, and the text deems that done after three years. The India-UAE Comprehensive Economic Partnership Agreement (CEPA) in force from 1 May 2022 is a trade agreement and gives an investor no claim.

Which treaty is in force, and from when?

The Department of Economic Affairs lists the treaty as signed on 13 February 2024 and in force from 31 August 2024, and a Press Information Bureau release of 7 October 2024 says the same. The English text prevails on any divergence.

It replaced the Agreement on the Promotion and Protection of Investments signed at New Delhi on 12 December 2013, which Chapter 12 of the CEPA names. Article 39.4 of the new treaty ends that agreement (which it calls the India UAE BIT 2014) on the earlier of the new treaty's entry into force and 12 September 2024, and requires any claim under it within five months of that date.

The new treaty applies to measures that exist before or after its entry into force, but not to "claims arising out of events which occurred, or claims which have been raised prior to the entry into force of this Treaty" (Article 2.3).

What counts as an investment, and who is an investor?

Article 1.4 defines investment as something owned or controlled, directly or indirectly, by an investor in the other Party's territory, made in accordance with that Party's laws "including the necessary approvals", and having the characteristics of an investment: commitment of capital, expectation of gain or profit, and assumption of risk. The definition is then closed ("only includes"). It is built on an enterprise "constituted, organized and operated in good faith" that can hold listed assets: shares and other equity, turnkey, production or revenue sharing contracts, bonds and loans of another enterprise, licences and permits, long-term rights, intellectual property, and moveable or immovable property. Natural resource concessions are left out of the long-term rights limb.

Article 1.4 also lists what is not an investment: debt securities of, or loans to, a government or government-owned enterprise; pre-operational expenditure before substantial business operations begin; claims to money arising solely from sale of goods or services or from credit extended in connection with them; goodwill, brand value and market share; orders or judgments; and any other claim to money without the interests or operations in the definition.

An investor, under Article 1.5, is a natural or juridical person of a Party, "other than a branch or representative office", that has made an investment in the other Party's territory. A juridical person qualifies if it is constituted and operated under that Party's law and has substantial business activities there, or if it is a legal entity of that Party owned or controlled by a natural person of that Party or by such a qualifying entity. A footnote says substantial business activity is examined case by case, with continuous physical presence, central administration, staff, and turnover and taxes paid as circumstances.

Article 36 denies the benefits of the treaty to an investor owned or controlled by persons of a non-Party or of the denying Party, to a structure set up or restructured mainly to reach arbitration, and, in Articles 36.2 and 36.3, to investors in which a person from a country sharing a land border with India holds a beneficial interest, defined as more than ten per cent of the investment, voting rights or distributable profit, or a right to exercise control.

What treatment does a UAE investor get?

Article 4.1 does not contain a fair and equitable treatment clause. It lists four things the Parties shall not subject investments to: denial of justice in judicial or administrative proceedings; fundamental breach of due process; targeted discrimination on manifestly unjustified grounds such as gender, race or religious belief; and manifestly abusive or arbitrary treatment, such as coercion, duress and harassment. Under Article 4.2, a measure taken in pursuit of legitimate policy objectives is not manifestly arbitrary treatment. Full protection and security "only refers to a Party's obligations relating to physical security" and requires nothing beyond the customary international law minimum standard of treatment of aliens.

National treatment under Article 5 covers management, conduct, operation, sale or other disposition of investments, in like circumstances, and a State Government's measure is measured against its treatment of its own Party's investors. In Chapter II we found no most-favoured-nation article.

Under Article 3, regulation that harms an investment or an investor's expectation of profit is not itself a breach.

How does expropriation work?

Article 6.1 bars direct or equivalent expropriation except for public purpose, in accordance with due process of law and on payment of adequate compensation, equal to fair market value immediately before the expropriation (Article 6.1), with simple interest at a commercially reasonable rate from the date of expropriation until payment (Article 6.2).

Indirect expropriation requires a measure that "substantially or permanently" deprives the investor of the fundamental attributes of property. The inquiry looks at economic impact, duration, the character of the measure, and whether it breaches a prior binding written commitment by contract, licence or other document. An adverse economic effect alone does not establish it, a Party's action in its commercial capacity is not expropriation (Article 6.4), and non-discriminatory regulation or judicial measures protecting public health, safety or the environment are not expropriation (Article 6.5).

What does the treaty not cover?

Article 2.4 excludes measures of a Local Government (in India, urban local bodies, municipal corporations and village governments, and enterprises they control), and a State Government is not a Local Government. It excludes "any measure regarding taxation, including measures taken to enforce taxation obligations", and says that a Party's decision that the conduct is a subject of taxation is non-justiciable before a tribunal. It also excludes certain intellectual property compulsory licences, government procurement, subsidies and grants, and services supplied in the exercise of governmental authority. Article 14.3 limits a tribunal to treaty breaches, so a dispute arising solely from a contract goes to the forum in that contract.

What must happen before arbitration?

Article 17.1 requires the investor first to pursue local remedies by submitting its claim to the competent courts or administrative or regulatory bodies within one year of the "Knowledge Date": when it first knew, or should have known, of the measure and of loss from it. The requirement falls away if no domestic remedy can reasonably give relief. Local remedies are deemed pursued if there is no satisfactory resolution after at least three years from the Knowledge Date, or earlier if remedies are exhausted, regardless of pending appeals. A Notice of Dispute then follows, with at least six months of consultation (Article 17.3). Article 17.4 requires, for arbitration, that not more than five years have passed from the Knowledge Date, or, where applicable, not more than twelve months from the conclusion of domestic proceedings, together with waivers from the investor and its enterprise, and a Notice of Arbitration at least 90 days before the claim, which may run alongside the consultation period.

Article 18 allows arbitration under the International Centre for Settlement of Investment Disputes (ICSID) Convention where both Parties are members, the ICSID Additional Facility Rules where only one is, or the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules. Article 27 limits awards to monetary compensation up to actual loss, excluding incidental and consequential damages including future profits, and bars punitive damages and injunctions.

How does this look in a timeline?

An illustration. The facts are hypothetical. A Dubai family office holds, through a UAE company with substantial business activities in the UAE, an Indian subsidiary that runs a warehousing project. A State Government cancels the land allotment without notice. The Knowledge Date is taken as 1 March 2027.

Step                                           Date on the text
Local claim filed with court or authority      by 1 March 2028
Local remedies deemed pursued (3 years)        1 March 2030
Notice of Dispute, earliest                    1 March 2030
Claim to arbitration after six months'
  consultation, earliest                       1 September 2030
Five years from Knowledge Date                 1 March 2032
If domestic proceedings end on 1 Nov 2031      12 months runs to 1 Nov 2032

Whether the second alternative can run past the five year line is read here from the word "or" between Articles 17.4(i) and (ii), and is not settled. The measure is a State measure, so Article 2.4 does not exclude it; a municipal cancellation would be excluded.

What is the duration, and what survives?

Article 39.2 says the treaty remains in force for ten years and lapses thereafter unless the Parties expressly agree in writing to renew it. On the words, ten years from 31 August 2024 ends in August 2034. Either Party may terminate on twelve months' written notice. For investments made before the termination or expiry takes effect, the treaty continues for ten years (Article 39.3).

How does it sit with the CEPA?

The CEPA was signed at New Delhi on 18 February 2022, and a Press Information Bureau release records its entry into force on 1 May 2022. Its Article 12.1 only notes the earlier investment agreement and renews a commitment to replace it. Article 12.6 provides that nothing in Chapter 12 is subject to any dispute settlement mechanism, so the CEPA gives an investor no route to arbitration.

Chapter 8, on services, reaches investment through commercial presence as a mode of supply, bound by each Party's schedule, and its market access article lists limits on foreign capital participation as a measure schedules may inscribe. Article 16.3 excludes any direct taxation measure from the CEPA, and Article 1.5 provides that an inconsistency with another agreement leads to consultation.

What remains unsettled?

Four points. Whether "manifestly" in Article 4.1(iv) and the policy objectives proviso in Article 4.2 leave room for a claim where a State measure is arbitrary but stated to be for a public purpose; the text has had no tribunal reading under this treaty that we have seen.

How the five years and twelve months in Article 17.4 fit together, as above.

Where a State agency acts through a municipal body, on which side of the Local Government exclusion the measure falls.

Whether an enterprise-based investment held through a family office structure shows the "substantial business activity" and ownership that Articles 1.5 and 36 require, a question the footnote leaves to case by case examination.