USING TRADE TREATY POLICY TO STRENGTHEN ARBITRATION: INTEGRATING INSTITUTIONAL ARBITRATION INTO FTAs

Why In News?

Experts emphasize that India should utilize its growing network of Bilateral Investment Treaties (BITs) and Free Trade Agreements (FTAs) to strengthen its domestic commercial arbitration framework and become a reliable global hub for contract enforcement.

Why Must India Leverage Trade and Investment Treaties to Strengthen Commercial Arbitration?

Expanding Treaty Footprint Unlocks Diplomatic Leverage

India has concluded modern bilateral investment pacts with the United Arab Emirates (2024), Uzbekistan (2024), and Israel (2025), alongside comprehensive trade agreements with the European Free Trade Association (EFTA), the United Kingdom, Oman, and New Zealand (April 2026).

International Capital Demands Predictable Legal Protection

Cross-border businesses entering multi-billion-dollar infrastructure, semiconductor, and clean energy commitments evaluate contract enforcement speed and arbitral certainty before allocating foreign direct investment (FDI).  

Treaties Can Reinforce Statutory Dispute Mechanism

While public debate centers on tariff reductions and market access, bilateral treaties can promote institutional dispute resolution by prescribing accredited Indian arbitral institutions for contractual commercial disputes. 

How Does the Existing Statutory and Judicial Framework Govern Arbitration in India?

1996 Act Anchors Domestic and Global Arbitration

The Arbitration and Conciliation Act, 1996 (modeled on the UNCITRAL Model Law on International Commercial Arbitration, 1985) establishes the legal architecture: 

• Part I governs arbitrations seated in India, while Part II governs the enforcement of foreign arbitral awards under the New York Convention, 1958 and the Geneva Convention, 1927. 

Constitutional Directives Promote Peaceful Dispute Resolution

Article 51(d) of the Constitution obligates the State to foster respect for international law and treaty obligations and to encourage the settlement of international disputes by arbitration.

The Seven-Judge Bench Upheld Minimal Judicial Intervention

In In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899 (2023), court held that non-stamping or insufficient stamping does not void an arbitration agreement at the referral stage, preserving the arbitral tribunal’s kompetenz-kompetenz jurisdiction. 

Seat Governs Territorial Sovereignty

In the Bharat Aluminium Co. (BALCO) vs Kaiser Aluminium Technical Services (2012), the Supreme Court established the territoriality principle, ruling that Part I of the Act does not apply to arbitrations seated outside India, preventing domestic courts from issuing anti-arbitration injunctions against foreign tribunals. 

Which Structural Gaps in the 2016 Model BIT Hinder International Dispute Resolution?

Defensive Treaty Redesign

Adverse arbitral awards in legacy bilateral disputes—such as White Industries vs Republic of India (2011), Vodafone International Holdings vs India (2020), and Cairn Energy vs India (2020)—led India to terminate 77 bilateral treaties and notify the defensive 2016 Model Bilateral Investment Treaty.

Exhaustion of Local Remedies (ELR) Clause Deters Partners

Article 15 of the 2016 Model BIT mandates that foreign investors must exhaust domestic court remedies for at least five years before initiating international arbitration, which developed trading partners (including the EU and UK) reject due to Indian judicial backlog. 

Exclusion of Taxation and Regulatory Measures Limits Protection

The 2016 framework excludes taxation, national security, subsidies, and non-discriminatory regulatory actions from the scope of arbitral review, reducing foreign investor appetite for treaty-backed capital projects.  

What Reforms Did the Srikrishna and Viswanathan Committees Recommend for Institutional Arbitration?

Justice B.N. Srikrishna Committee (2017) Recommended Institutionalization

The panel called for ending ad-hoc arbitration in India, establishing the Arbitration Council of India (ACI) to grade arbitral institutions, and designating the India International Arbitration Centre (IIAC) to handle international disputes.

Dr. T.K. Viswanathan Committee (2024) Proposed Comprehensive Codification: Formulated by the Ministry of Law and Justice, the panel recommended amending the 1996 Act to:

• Strictly Limit Court Intervention: Narrow the grounds for setting aside arbitral awards under Section 34 and Section 37, clarifying that "patent illegality" cannot justify a de novo merits review. 

• Grant Statutory Status to Emergency Arbitrators: Formally recognize orders issued by emergency arbitrators to protect commercial interim relief before tribunals are constituted.  

• Incorporate Model Contract Clauses: Mandate all public sector undertakings (PSUs) and government contracts to replace open-ended court litigation with pre-agreed institutional arbitration clauses.

What India Can Learn from Successful Models?

Singapore International Arbitration Centre

Singapore achieved global leadership through the International Arbitration Act (IAA), institutional infrastructure at Maxwell Chambers, specialized Commercial Courts with international jurists, and statutory enforcement of emergency arbitrator orders. 

London Court of International Arbitration

The UK established global primacy via the English Arbitration Act 1996, backed by specialized Commercial Courts that uphold party autonomy and limit judicial appeals on points of law. 

Way Forward to Establish India as a Global Arbitration Hub 

Incorporate Commercial Arbitration Protocols into Future FTAs

Bilateral trade chapters with the UK, EU, and Oman should designate accredited domestic arbitral institutions—as pre-agreed dispute resolution forums for cross-border joint venture contracts.

Re-Calibrate the Exhaustion of Local Remedies in BITs

Transition from the rigid 5-year mandatory domestic litigation rule toward a flexible 3-year sunset period paired with institutional investor mediation under the Mediation Act, 2023.

Establish Dedicated Arbitration Benches in High Courts

Form specialized commercial arbitration divisions in key commercial centers (Delhi, Mumbai, Bengaluru, Chennai) to adjudicate applications within a strict six-month statutory ceiling. 

Ratify the Singapore Convention on Mediation

Accelerate domestic ratification of the United Nations Convention on International Settlement Agreements Resulting from Mediation (Singapore Convention) to enable direct enforcement of mediated settlement agreements across treaty partners.

Promote Professional Arbitral Accreditation

The Arbitration Council of India must operationalize professional accreditation standards, training young commercial lawyers, retired jurists, and specialized industry experts to eliminate arbitrator availability bottlenecks. 

Conclusion

By pairing free trade and investment agreements with institutional arbitration reforms under the 1996 Act, India can transform commercial dispute resolution from an investment bottleneck into a competitive pillar of global economic engagement.

Source: THEHINDU