Trade Treaties as a Catalyst for India’s Arbitration Ecosystem

Why in News?

• India has expanded its treaty network through recent BITs and FTAs with major economic partners.
• While these agreements are generally discussed in terms of trade, investment and InvestorState Dispute Settlement (ISDS), they also have implications for commercial arbitration in India.
• The central question is how treaty design can complement India’s domestic arbitration framework.

India’s Existing Arbitration Framework

 The Arbitration and Conciliation Act, 1996 provides the statutory framework for:

• Domestic arbitration.
• International commercial arbitration.
• Enforcement of foreign arbitral awards.

 The challenge is not merely creating arbitration law, but ensuring that businesses perceive India as a predictable and enforceable disputeresolution jurisdiction.

BIT/FTA–Arbitration Interface

ISDS vs Commercial Arbitration

A crucial distinction is required:

ISDS

• Arises primarily from an investment treaty.
• Allows an eligible foreign investor to bring claims against the host State under specified treaty conditions.
• Concerns can include regulatory autonomy, sovereign decisions and potential exposure of the State to international claims.

Commercial Arbitration

• Generally arises from a contractual relationship.
• Resolves commercial disputes between contracting parties.
• Can provide an alternative to prolonged court litigation.

Need for Clear Treaty Drafting

• Recent treaties sometimes distinguish between investmenttreaty disputes and disputes arising solely from contracts.
• Future treaties could make this distinction more explicit.

Clear drafting can prevent uncertainty regarding:

• Jurisdiction.
• Applicable remedies.
• Interaction between treaty arbitration and contractual arbitration.
• Exhaustion of local remedies.

ThirdParty Funding: A Policy Gap

• Thirdparty funding allows an external party to finance arbitration costs in return for an agreed financial interest.
• Restrictions may be justified in ISDS, where disputes involve sovereign regulatory decisions and publicinterest considerations.
• However, commercial arbitration involves different considerations.
• India therefore needs a clear domestic regulatory framework distinguishing thirdparty funding in commercial arbitration from its treatment in ISDS.

Way Forward

• Treaty clarity: Clearly define the relationship between ISDS and contractual commercial arbitration.
• Strengthen domestic arbitration: Improve institutional capacity, procedural efficiency and enforcement.
• Recognise Indian arbitration as a credible local remedy: Where appropriate, treaty language can expressly accommodate this.
• Develop thirdparty funding rules: Establish transparency, disclosure and conflictofinterest safeguards.
• Ensure predictable judicial enforcement: Minimise unnecessary judicial intervention while preserving legitimate review.
• Build institutional arbitration capacity: Strengthen Indian arbitral institutions and professional expertise.
• Integrate trade and disputeresolution policy: Treat arbitration as part of India''s broader trade and investment infrastructure.