Context

• India’s expanding network of Bilateral Investment Treaties (BITs) and Free Trade Agreements (FTAs) reflects its efforts to deepen economic integration, attract investment and expand international market access.
• Recent agreements with the UAE, Israel, Uzbekistan, UK, EFTA, Oman and New Zealand demonstrate this growing engagement.
• Their importance, however, extends beyond tariffs and investment protection to commercial dispute resolution and arbitration.
• For international investors, the attractiveness of an economy depends not only on market opportunities but also on what happens when commercial relationships break down.
• India can therefore use its treaty framework to strengthen its domestic arbitration ecosystem and establish itself as a credible international arbitration jurisdiction.

The Opportunity Beyond Market Access

• The Arbitration and Conciliation Act, 1996 provides the statutory foundation for domestic arbitration, international commercial arbitration and enforcement of foreign awards.
• The challenge is to connect this framework more effectively with India's international treaty policy.
• India’s recent FTAs have generally omitted Investor-State Dispute Settlement (ISDS), reflecting concerns about regulatory autonomy and potential claims against the State.
• However, substantial foreign investment occurs through contracts between investors and Indian government agencies.
• In such cases, commercial arbitration can provide an alternative to ordinary court litigation.
• Future FTAs could clarify that the absence of ISDS is supported by the availability of effective commercial arbitration remedies in India.
• Such clarity would reassure investors while preserving India’s reservations concerning international investment arbitration.

Distinguishing ISDS from Commercial Arbitration

• India’s BITs increasingly distinguish treaty-based investment arbitration from contractual commercial arbitration.
• The India-Uzbekistan BIT, for example, excludes disputes arising solely from contractual breaches from ISDS.
• Greater clarity is required regarding local-remedy requirements. Some BITs require investors to approach domestic courts or administrative bodies before initiating international arbitration.
• Commercial arbitration seated in India should potentially be recognised as another legitimate mechanism for addressing investment-related contractual disputes.
• Future BITs could therefore clarify that pursuing a dispute through Indian commercial arbitration may satisfy applicable local-remedy requirements.
• This would better integrate domestic arbitration into India’s investment-protection architecture while avoiding unnecessary procedural uncertainty.

Third-Party Funding: A Need for Nuance

• Third-party funding allows external financiers to bear arbitration costs in return for an agreed financial interest in the outcome.
• India’s reservations about such funding in ISDS are understandable because investment disputes involve sovereign decisions and may affect regulatory policymaking.
• However, these concerns do not necessarily apply to ordinary commercial disputes.
• Restrictions on third-party funding in ISDS should therefore not automatically imply its prohibition in domestic commercial arbitration.
• India could develop a comprehensive regulatory framework covering disclosure, conflicts of interest, transparency and procedural fairness.
• A clear distinction between ISDS funding and commercial arbitration funding would help create a more mature arbitration ecosystem.

The Evaluation Parameters of Investors

• Investors evaluate economies on more than taxation, tariffs and market access. They also consider whether disputes can be resolved predictably and efficiently.
• A strong investment environment requires three interconnected elements:
  • Prevention of disputes through clear treaties and contracts.
  • Efficient arbitration proceedings that resolve disputes fairly and promptly.
  • Predictable judicial enforcement of arbitral awards.
  • India does not need to transform every BIT or FTA into an arbitration agreement.
• Instead, treaties should complement domestic reforms and clearly establish the relationship between ISDS, courts and commercial arbitration.

India as a Global Arbitration Hub

• India’s ambition to become a global arbitration hub requires consistency between treaty policy, legislation, judicial practice and institutional capacity.
• A credible arbitration ecosystem can reduce commercial uncertainty, strengthen investor confidence and facilitate long-term contracts.
• At the same time, appropriate safeguards are necessary to protect legitimate governmental regulation and prevent excessive claims against the State.
• The objective should therefore be a balanced system that protects commercial interests without compromising regulatory autonomy.

Conclusion

• India’s growing BIT and FTA network provides an opportunity to integrate trade, investment protection and dispute resolution more effectively.
• The absence of ISDS in some agreements need not create a legal vacuum if commercial arbitration in India is made credible, accessible and predictable.
• Future treaties should distinguish investment disputes from contractual disputes, clarify the relationship between local remedies and Indian-seated arbitration, and separate restrictions on ISDS funding from the potential use of third-party funding in commercial arbitration.