India Faces Legal Setback: London Court Allows UAE Investor to Pursue Arbitration

The government of India has suffered a significant legal defeat in the Court of Appeal of England and Wales, a ruling that clears the path for a long-standing multi-million dollar arbitration claim brought by the Ras Al Khaimah Investment Authority (RAKIA). The decision, handed down on 22 October, effectively overturns earlier attempts by New Delhi to block the UAE-based investment arm from seeking damages over a collapsed aluminium project in Andhra Pradesh.

A Stalled Industrial Ambition

The roots of this legal battle trace back to 2007, when the Ras Al Khaimah government, one of the seven emirates of the UAE, entered into a high-profile agreement with the state government of Andhra Pradesh. The plan was to develop a massive aluminium complex, comprising an alumina refinery, a smelter, and a dedicated power plant, with an estimated investment of $2 billion.

RAKIA became a significant stakeholder, investing $42.5 million into ANRAK Aluminium, the local entity created to execute the project. However, the endeavor faced intense public opposition due to concerns over environmental impact and land use. Under mounting pressure, the Andhra Pradesh government in 2016 revoked the executive orders that had permitted the critical supply of bauxite to the project. Without this essential raw material, the refinery could not function, and the venture effectively collapsed.

The Treaty Dispute

Following the termination of the project, RAKIA launched arbitration proceedings in London, alleging that India had violated the 2013 India-UAE bilateral investment treaty. The authority argued that the government’s sudden reversal of the bauxite supply contract constituted a form of unfair treatment and expropriation of its assets.

India had successfully argued before an arbitration tribunal in 2022 that it was not liable. The tribunal had concluded that while the government’s decision harmed the local company (ANRAK), it did not constitute an action “directed at” RAKIA’s investment, which was specifically its minority shareholding. India maintained that any decline in the value of those shares was merely an indirect consequence of operational challenges faced by the Indian entity.

Legal Precedent on Shareholder Protection

The recent Court of Appeal judgment has shifted the landscape significantly. Lord Justice Phillips, writing for the bench, rejected India’s narrow interpretation of the treaty. The court emphasized that if a government’s actions were to be exempt from arbitration simply because they targeted the subsidiary company rather than the specific share certificates, the protections afforded by international treaties would be rendered effectively “emasculated.”

The court employed a hypothetical scenario to illustrate its point: if a government were to seize the liquid assets of a company, the parent investor would still be directly impacted. To rule otherwise would allow states to circumvent their international obligations by simply directing their measures at the corporate structure rather than the investor itself.

Future Implications

By clarifying that a government action does not need to be explicitly “targeted” at a specific shareholding to fall under treaty protection, the court has lowered the barrier for RAKIA’s claim. The judges noted that the cancellation of the bauxite supply arrangements was an act that directly impacted the investment, regardless of whether it was intentionally aimed at the UAE authority or the wider business environment.

The dispute is now set to return to a London-seated tribunal, operating under UNCITRAL rules. The tribunal is tasked with finally evaluating the merits of the case—specifically whether the actions of the Indian state did, in fact, breach the bilateral obligations under the investment treaty. As the case returns to the arbitration chamber, the decision serves as a stern reminder of the far-reaching nature of international investment protections and the potential liabilities states face when regulatory decisions disrupt foreign-backed projects.

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